The most frustrating part of the Securities and Exchange Commission's investigation of Lehman Brothers Holdings Inc. isn't that the agency never sued any of its former executives. It's that that the SEC never explained its reasons or told the public what it found.
The New York Times had a well-reported article today on the reasons why the SEC closed its investigation, which is a hot topic again with the approaching five-year anniversary of Lehman's collapse. Yet we still don't have a complete account.
The Times noted one exchange in 2011 between senior SEC officials in which Lorin Reisner, then deputy director of the agency's enforcement division, "suggested preparing a draft of potential charges so the agency could have a concrete document to review." The team in charge of the Lehman probe balked. The attorney in charge of the investigation, George Canellos, "instead proposed that the SEC publish a report that would publicly explain the decision to forgo charges." The SEC's chairman at the time, Mary Schapiro, and other officials "rejected that option, concerned that Mr. Canellos's first draft was too sympathetic to Lehman," the Times reported.
Regardless of whether the SEC made the right decision in not filing claims against Dick Fuld and other former Lehman higher-ups, this was the kind of situation that cried out for an investigative report to answer the public's many questions about the case. Known as 21(a) reports (so named for the section of the Securities Exchange Act of 1934 that authorizes them), they are rarely issued by the commission. But they perform an enormous public service in those instances where the stakes and the public interest are great.
In May, for example, the SEC issued a report about disclosure violations by Harrisburg, the insolvent capital of Pennsylvania, even though no city officials were accused of violations. The month before that, the SEC issued a report about its investigation of whether Netflix Inc. and its chief executive officer had violated disclosure rules with their use of social media to divulge information about the company. Although the SEC decided not to file claims, it used the report to explain its reasoning and to clarify some of its policies. Other investigative reports in recent years have focused on Moody's Investors Service and JPMorgan Chase & Co.
Those were all worthy subjects. So is the biggest-ever collapse of a Wall Street bank -- one that told investors it was healthy when it wasn't.
We still don't know what evidence the SEC found. Was the agency's probe compromised by the fact that it was Lehman's primary regulator? If Lehman had in fact violated any securities laws -- say, by cooking its books -- is that something the SEC or other government officials were aware of before Lehman collapsed? If so, is that one of the reasons former Lehman executives may have had strong defenses? And was the SEC too slow to launch its investigation in the first place?
It's not too late for the SEC to do the right thing here and issue a report about its Lehman probe's findings. The SEC has a new leader, Mary Jo White. Canellos is now co-director of the agency's enforcement division. If the report winds up looking too sympathetic to Lehman, as Schapiro reportedly feared, so be it. It would be helpful to know that the agency's sympathies might have been a contributing factor. What doesn't make sense is for the SEC to say nothing.
(Jonathan Weil is a Bloomberg View columnist. Follow him on Twitter.)