Godahewa was appointed to the position by the state in controversial circumstances after the previous boss, who was cracking down hard on stock market fraud resigned saying he was under pressure.
The so-called 'stock market mafia' was a reference by some critics to politically powerful market players who 'cornered' illiquid stocks and pumped them up or engaged in other questionable activities such as chop stock trading or creating false markets.
Questionable trading activities - especially those that become widespread during credit bubbles - are not clearly defined as fraud under Sri Lanka's securities law as in some other countries.
Some of the inflated stocks were then dumped on state managed funds, retail investors and others who chased after quick gains with margin loans, critics said.
Sri Lanka's finance ministry before completion halted one such transaction, involving state-run National Savings Bank.
The trading pyrotechnics were performed during a time when interest rates were low and liquidity was high in money markets, creating conditions for asset price bubbles. The credit bubble later dissipated itself after hitting the balance of payments.The rupee weakened against the dollar falling from 110 to 134 rupees and interest rates rose. Stock prices gradually came back to earth.
The world's first SEC, in the United States was also created following widespread abuses during the so-called 'roaring 20s' economic bubble triggered by Federal Reserve money printing.
The economic bubble collapsed along with the stock market in 1929 creating the 'Great Depression'. The US dollar was devalued for the first time in its history from 20 to 35 units to an ounce of gold. The US SEC was created in 1934.
The Fed also brought the first rules on margin trading after the market collapsed.
In Sri Lanka the SEC brought in credit restrictions before the market collapsed perhaps preventing further losses to late entrants to the market, analysts say. The moves attracted fire from brokers and politically powerful investors.
The credit restrictions were also brought without wide consultation, violating a fundamental principle of rule and law making leading to several changes on the run which some say weakened SEC's authority.
Sri Lanka's SEC has illiberal powers to gazette rules overnight in the style of Germany's 'Enabling Act' without consulting citizens.
Other agencies that make rules without going to parliament, such as the telecom and power regulators have a set process where first consultants are hired to draft rules, which are then opened for public comments.
The process ends with a public hearing where interested persons can voice comments and make presentations. The regulator then announces a determination. In some cases affected people can go to court against determinations.
The SEC has also followed similar processes in other instances.
SEC eventually lost two chairmen and one director general during the bubble, leading to a loss of confidence among the public.
Questioned by reporters whether Godahewa was referring to reporters as the 'mafia', Godahewa said he was referring to people who made statements in the media rather than the journalists themselves.
He said 'negative' media reports created a bad impression about the country in the minds of foreign investors, who will shun the country.
After getting into a verbal tiff with a reporter from Sri Lanka's Divaina newspaper who was accused of coming to the media conference with a negative mindset, Godahewa later apologized and retracted the statement.
The reporter said he had asked many tough questions in his life as a reporter and this was the first time he had received such a response from an official.
Other reporters also protested that asking questions was their job, and pointed out that Godahewa himself had said he was prepared to answer any question at the beginning of the press conference.
It was also pointed out that foreign investors were now coming to the country despite reports of the stock market mafia, while they were selling even before the stock market mafia phrase hit the headlines.
Godahewa said there could be greater potential that was lost due to negative reports.
Analysts however say if there are perceptions of crime, corruption, lawlessness or even expropriation, some emerging market investors may still come as all risks can be potentially traded off with higher rewards.
As a result, they may demand a higher risk premium, indicating that price to earnings multiples have to be re-rated down make stocks attractive.
Savvy foreign investors who trade on fundamentals, and sold out during the peak of the bubble when price to earnings multiples hit the upper 20s are now coming back, with some well managed firms with fair prospects trading below 10 times earnings.