Lol. They went after Mark Cuban with no ammunition. And they ignored Stanford and Madoff for over a decade despite having the cases laid out in front of them in black and white. Higher management told the junior staff to back off. Why aren't the SEC in court for that? Seems like its one rule for the private sector, and a different type of justice for the government.
Why is it a fraud to structure a deal? Deep out the money puts are structured so that they pay off huge if the buyer is right - does that represent a fraud when the buyer hits a home run? If housing had gone up 5 years in a row, and it was Paulson who got hosed, would it still be a fraud in your opinion?
What? So if a long wants a geared punt on an asset, and a short wants a geared punt against the asset, it's a crime for a middleman to create said asset and charge a small % fee? EVERY transaction in the financial markets is done with a counterparty who is directly betting on the exact opposite to your position/view. Every single one.
Agree. One interesting point of discovery will be the exact meaning of Blankfein's Nov/09 statement: "We participated in things that were clearly wrong and have reason to regret," Blankfein said during his remarks at the National Association of Corporate Directors in New York City, where he was honored as CEO of the year. "We apologize."
Ghost of Cutten, you're misunderstanding the SEC's allegation. Their allegation is that Goldman Sachs told clients that the products were structured by an objective organisation, an independant credit analist called ACA Management LLC, which was also the collateral manager in the deal. According to the SEC, ACA never structured the products, they merely signed off on them. Not only did Goldman Sachs mislead clients who went long, they also mislead the ACA by representing Paulson & Co as an investor in the equity tranches of the products. If they have the evidence to back this up then the SEC has a case. This is indeed a form of fraud under the articles of law that the SEC referred to.
Why doesn't everyone just read the SEC complaint? http://www.sec.gov/litigation/complaints/2010/comp-pr2010-59.pdf Rule 10b-5 -- Employment of Manipulative and Deceptive Devices It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, 1. To employ any device, scheme, or artifice to defraud, 2. To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or 3. To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.
Recommend reading these three documents, KEEPING IN MIND THAT WE HAVE HINDSIGHT NOT AVAILABLE TO THE PARTICIPANTS AT THE TIME: 1) The SEC's complaint: http://www.sec.gov/litigation/complaints/2010/comp21489.pdf 2) Goldman's comments on it: http://www2.goldmansachs.com/our-firm/press/press-releases/current/sec-response.html 3) The ABACUS 2007-AC1 Flipbook (attached). A few quick points: -- Paulson nailed this (para 25 of SEC complaint). But at the time, he wasn't regarded as the genius he is now. His views were no secret on the street and some even thought he was a kook. Still, the SEC complaint keeps referencing Goldman's lack of disclosure as if Paulson was God Almighty who could see the future and Goldman somehow knew it... even though Goldman lost $75 million on the deal ($90M minus their $15M fee). -- At the time, ACA had huge experience and a perfect track record: "No rated notes in any of ACAâs CDOs have ever been downgraded" (slide 27 in flipbook). But in hindsight we see they had lousy due diligence and had been shooting themselves in the foot before this deal came along. For example, they'd previously bought 62 of the 123 RMBS on Paulsonâs list (para 27 of SEC complaint). Also see para 65 of the SEC complaint. -- Now look at Goldman's disclaimer and risk factor warnings in the flipbook (slides 2 - 9), and their "conflicts of interest" warnings (slide 8) through two different lenses... hindsight and no hindsight. -- I find it interesting that Paulson wouldn't bet against Wells Fargo's subprimes (para 34 of SEC complaint). What a coincidence that Berkshire held over 200 million shares of WFC back then. Not saying that Paulson didn't do his own due diligence... my point is that on one side we had intersecting market opinions of Warren Buffett and John Paulson and on the other side we had ACA, a company whose CEO had worked at Ambac and whose CFO had worked at MBIA (slide 25 in flipbook).
http://www.whitecollarfraud.blogspot.com/ "In filing its lawsuit against Goldman Sachs (NYSE: GS) on a Friday, the Securities and Exchange Commission sent what I call the "kiss of death" message to the embattled company. In other words, the SEC wanted to stick it to Goldman Sachs and Fabrice Tourre, the Executive Director of Goldman Sachs International, who is also a defendant in the complaint. " Is he still crazy?
I think so... IN HINDSIGHT he's hanging his hat on Goldman's nondisclosure of Paulson's interests. Paulson didn't have an illegal edge, a crystal ball or a monopoly on reality. IMO material fraud would been misrepresenting what was in the portfolio.