Fooling Some of the People All of the Time, a Long Short (And Now Complete) Story, Updated With New by David Einhorn (tohfa e dulha read online TXT) 📕

took a long time because “Allied was not overly cooperative” and, as described later, Gene A. Gohlke, the associate director of the OCIE, caused additional delays. Allied came in 18 to 20 times to “explain” what it was doing.

The staff accountant was supervised very closely by Gohlke. This was a most unusual arrangement, as there were several layers of seniority between them. The staff accountant told the OIG that in her view assigning her, a fairly new employee, signaled, “It was almost like they didn’t want to find anything.” Bless her soul, she decided, “This was a project to prove myself.”

After a period of time, the staff accountant asked for additional help and an examiner was added to the team. They received considerable push-back from Gohlke. Periodically, the two would meet with Gohlke, who conveyed an overall feeling that they were overdoing it. When they voiced their convictions that there was a problem with Allied, Gohlke sent them back to do more work. According to the examiner, this “didn’t undo what we found.”

The report indicated that in June 2003, Gohlke met alone with Allied and came away satisfied with Allied’s answers. As a result, the examiner believed that the OCIE would likely back off from Allied.

According to the examiner, Gohlke knew Sweeney and “indicated that he trusted her and had the view that anyone who had worked at the SEC was ‘not going to be doing anything illegal.’” The examiner testified that Gohlke told her, “Sweeney is a nice person. She used to work here. I know her. She is not going to do anything illegal.” The examiner believed that Gohlke was personally involved in the Allied examination because he knew and trusted Sweeney.

In his testimony, Gohlke did not recall knowing Sweeney and though he may have known she worked for the SEC, he swore he “did not remember” this fact. When confronted with testimony from the staff accountant and the examiner that contradicted him, Gohlke testified he didn’t remember if he knew Sweeney or said those things about her. Gohlke admitted he believes that someone in the industry who used to work at the SEC is more likely to be fair and honest.

After my testimony at the SEC in 2003, Braswell contacted Gohlke, who told Braswell that he did not believe Allied was engaged in wrongdoing, even though Gohlke’s division, the OCIE, had already found evidence of wrongdoing by Allied.

At the end of the 18-month investigation, the SEC never sent a deficiency letter to Allied. As a result, “the people [at Allied] just kept doing what they were doing,” according to the examiner. Both the examiner and the staff accountant believed strongly that Allied had major problems. Gohlke “gave them a lot of push-back about referring it to Enforcement.” The staff accountant testified that after the referral, Gohlke stopped speaking to her for months. Her branch chief told her that she was putting her career on the line by going against Gohlke.

After OCIE referred the case to Enforcement in early 2004, Enforcement conducted an investigation, which supported the concerns of the OCIE. There is a lot of space discussing this investigation in the OIG report, but too much is redacted to know what actually transpired.

The SEC’s general process is that if it plans to take legal action it sends a Wells notice outlining the problem to give the accused a chance to respond before the SEC takes legal action. In the Allied case, Enforcement never sent a Wells notice. Instead, Allied’s lawyers asked for a “pre-Wells” meeting. According to the Enforcement Manual, there is no such thing as a pre-Wells meeting.

Nonetheless, on October 25, 2006, Enforcement met with a team of “heavily, heavily armed” lawyers representing Allied, including McLucas. Allied was told that the SEC was considering bringing fraud charges against the company and one of its officers. A week after the meeting, the Enforcement counsel running the investigation was told by his superiors that all possible fraud charges against Allied were going to be dropped.

One of the higher-ups took the point of view that in order to prove a fraud case they would have to look at every investment in Allied’s portfolio—not just the couple dozen that Enforcement had found to be overvalued. Using this twisted logic, unless every valuation is fraudulent, there can be no fraud charge.

One SEC official testified that the ultimate penalty was “a slap on the wrist,” but added that Enforcement was dealt a bad hand because of the pressure Allied could exert given its political connections as well as the Commission at that time acting in a very hands-off manner.

As for my continued complaint to the SEC that Allied violated the Cease and Desist Order by continuing to overvalue its portfolio, it appears that my letter was ignored. Enforcement has no policy for monitoring its own settlements. Several pages of related discussion were redacted from the OIG report.

In early 2009, the staff accountant realized that all of her Allied files, including spreadsheets, the examination report, interoffice memos, e-mails, and other work product, had been deleted from both the shared network J drive and her hard drive at the SEC. She testified that when she and her branch chief told Gohlke, he did not appear surprised or even concerned. She testified that his response was not normal. She also testified that she believed this was not an accident, and suspected Gohlke either directed the files be deleted or deleted them himself.

During his testimony, when Gohlke was asked whether he deleted the files from the J drive, he responded, “I don’t even go on the J drive,” which is not quite a denial.

We also learned a lot more about Mark Braswell. The OIG conducted several telephone interviews with Braswell, who refused to appear to testify. Braswell made numerous promises to provide a written narrative to the OIG, but never followed through.

Prior to my testimony in 2003, Braswell was already on a performance improvement plan. He did not complete his work in a timely manner and