The Securities and Exchange Commission (SEC) decided not to explain why it didn’t file charges against anyone at Lehman Brothers, because it was afraid the public would find its report too sympathetic to the firm, writes Steve Goldstein on his MarketWatch blog.

SEC Decided It Didn't Have The Authority To Charge Lehman

Lehman Brothers’ statute of limitations

Lehman Brothers unraveled in 2008, so the five year statute of limitations on anything illegal that may have happened is coming up, prompting a New York Times report as well as Goldstein’s blog post. The decision not to charge Lehman CEO Richard Fuld seems to have been made  by then-head of the SEC’s New York office George Canellos. Canellos led an investigation into Lehman and found that there were no material omissions from Lehman’s disclosures, and that the accounting practices used by the firm, while controversial, weren’t actually illegal. He also determined that the SEC didn’t have the authority to charge Fuld in the first place.

Canellos is now the co-director of the agency’s enforcement division, so what he thought about Lehman gives us some insight to how he probably approaches his current position. The idea that the SEC did not have the authority to charge Fuld for failing to manage his firm means that he takes a particularly narrow view of the regulatory agency’s purview. The decision to keep quiet until the statute of limitations hits, instead of explaining why the SEC wouldn’t charge Lehman Brothers or Fuld is particularly galling. If regulatory bodies are waiting out the clock because they believe their decisions are publicly indefensible, something is probably wrong.

SEC chairperson’s statement

Then-SEC chairperson Mary Schapiro said at the time that she didn’t understand why charges weren’t being brought, and felt that it would be unethical to overturn the decision of her subordinate because she was a political appointee and he was not.

For those with plenty of time on their hands, Judge James Peck of the U.S. Bankruptcy Court in New York wrote a 2,200 page report detailing exactly what happened at Lehman a few years ago, and his findings differed sharply from Canellos’. Peck accused Lehman executives of using tricks like the Repo 105 accounting technique to manipulate their books, which certainly seems like something the SEC would be interested in.