STEVE INSKEEP, host:
We're also following the battle between the Wall Street firm Goldman Sachs and the Securities and Exchange Commission. The SEC has filed fraud charges against Goldman and both sides have a lot at stake here. For Goldman, there's a long history with a mostly clean regulatory record. For the SEC, the case is a chance to show if it can keep up with changing markets.
NPR's Yuki Noguchi has our report.
YUKI NOGUCHI: Trying to understand the financial crisis left us with a new lexicon of terms hardly anyone can explain - credit default swaps, synthetic collateralized debt obligations. More generally, some people call them exotic instruments - exotic as in complicated.
For the SEC, prosecuting potential fraud involving investments like these is, to put it simply, hard.
Mr. LYNN TURNER (Former SEC Accountant): They will only be able to pick off a handful of these, because of the time it takes and the money it takes.
NOGUCHI: That's Lynn Turner, former chief accountant for the SEC, whose work included forensic tracking of money.
Mr. TURNER: Typically the SEC has been an agency of many attorneys who are not always well versed in the business operations and transactions of Wall Street.
NOGUCHI: And Turner says it requires lots of financial knowledge even to know where to look for possible fraud. And once you identify something fishy, then the process involves extensive depositions, downloading hard drives and going through millions of emails.
Mr. TURNER: It just takes incredible time and an incredible number of staff; it takes very highly qualified forensic and computer experts. That's very expensive, very time consuming.
NOGUCHI: And the SEC's opponents - in this case Goldman Sachs - have tons of resources to match them.
The SEC suffered some big missteps with high-profile cases involving Bear Sterns and Bernard Madoff. And it's mindful of its challenges.
So now the agency is boosting its policing of this new area because it's their job to make sure investors have faith in the markets.
Earlier this year, the agency created new teams within its enforcement bureau with expertise in some of these complex financial products. Robert Khuzami is director of that bureau. The SEC declined to offer him for an interview.
But last month, Khuzami spoke to the Society of American Business Editors and Writers. He said that Wall Street firms sometimes use the complexity of products to conceal misconduct.
Mr. ROBERT KHUZAMI (Director, SEC Enforcement Bureau): So the only way to catch theses people is to be smart in the areas that they operate.
NOGUCHI: He says here: So the only way to catch them is to be smart in the areas that they operate.
But then there's the added challenge of winning the case if it goes to court. And there, experts say, the SEC faces more obstacles. First, it needs to explain how these investments work to a jury. And then prosecutors need to prove, definitively, that the defendant broke the law.
Take the Goldman case: The bank allowed one of its clients to structure an investment, even as that client was betting against it.
Goldman's actions may seem unethical, but that's not the legal issue here. It's whether Goldman should have disclosed a possible conflict of interest that's the problem.
Peter Henning is a professor and former attorney in the SEC enforcement division. He says with these new products there's no single standard for what is proper disclosure.
Professor PETER HENNING (Wayne State University Law School): Disclosure is not the same in every case. The buyers of this security were not mom and pop investors. These weren't people in off the street. These were large financial institutions with their own ability to analyze the underlying security and the risks involved.
NOGUCHI: Indeed, in a conference call yesterday, Goldman Sachs said the investors understood the risks involved. Goldman's general counsel also said those investors knew that other investors would be betting against them. That's just the way the game works.
Henning says these newfangled financial products didn't even exist when he was at the SEC, and he admits he just barely understands them. So he doesn't envy the SEC's task of going after Goldman Sachs. He's also grateful he doesn't live in Manhattan, where the jury would be picked if the case goes to trial.
Mr. HENNING: I would not want to sit in the courtroom and listen to this testimony because it's going to put a lot of people to sleep.
NOGUCHI: Goldman Sachs said yesterday the case appears to be heading to court. It has not, however, ruled out the possibility of a settlement.
Yuki Noguchi, NPR News, Washington