I have been watching with a mixture of awe and dismay some of the really bad analysis, sloppy reporting, and just unsupported commentary about the GS case.

I put together this list based on what I know as a lawyer, a market observer, a quant and someone with contacts within the SEC. (Note: This represents my opinions, and no one elses).

Ten Things You Don’t Know (or were misinformed by the Media) About the GS Case

1. This is a Weak Case:  Actually, no — its a very strong case. Based upon what is in the SEC complaint, parts of the case are a slam dunk. The claim Paulson & Co. were long $200 million dollars when they were actually short is a material misrepresentation — that’s Rule 10b-5, and its a no brainer. The rest is gravy.

2. Robert Khuzami is a bad ass, no-nonsense, thorough, award winning Prosecutor:  This guy is the real deal — he busted terrorist rings, broke up the mob, took down security frauds. He is now the director of SEC enforcement. He is fearless, and was awarded the Attorney General’s Exceptional Service Award (1996), for “extraordinary courage and voluntary risk of life in performing an act resulting in direct benefits to the Department of Justice or the nation.”

When you prosecute mass murderers who use guns and bombs and threaten your life, and you kick their asses anyway, you ain’t afraid of a group of billionaire bankers and their spreadsheets. He is the shit. My advice to anyone on Wall Street in his crosshairs: If you are indicted in a case by Khuzami, do yourself a big favor: Settle.

3. Goldman lost $90 million dollars, hence, they are innocent:  This is a civil, not a criminal case. Hence, any mens rea — guilty mind — does not matter. Did they or did they not violate the letter of the law? That is all that matters, regardless of what they were thinking — or their P&L.

4. ACA is a victim in this case: Not exactly, they were an active participant in ratings gaming. Look at the back and forth between Paulson’s selection and ACAs management. 55 items in the synthetic CDO were added and removed. Why?

What ACA was doing was gaming the ratings agencies for their investment grade, Triple AAA ratings approval. Their expertise (if you can call it that) was knowing exactly how much junk they could include in the CDO to raise yield, yet still get investment grade from Moody’s or S&P. They are hardly an innocent party in this.

5. This was only one incident: The Market sure as hell doesn’t think so — it whacked 15% off of Goldman’s Market cap. The aggressive SEC posture, the huge reaction from Goldie, and the short term market verdict all suggest there is more coming.

If it were only this one case, and there was nothing else worrisome behind it, GS would have written a check and quietly settled this. Their reaction (some say over-reaction) belies that theory. I suspect this is a tip of the iceberg, with lots more problematic synthetics behind it.

And not just at GS. I suspect the kids over at Deutsche bank, Merrill and Morgan are working furiously to review their various CDOs deals.

6. The Timing of this case is suspect. More coincidental, really. The Wells notice (notification from the SEC they intend to recommend enforcement) was over 8 months ago. The White House is not involved in the timing of the suit itself, it is a lower level staff decision.

7. This is a Complex Case:  Again, no. Parts of it are a little more sophisticated than others, but this is a simple case of fraud/misrepresentation. The most difficult part of this case is likely to turn on what is a “material omission.” Paulson’s role in selecting mortgages may or may not be material — that is an issue of fact for a jury to determine.  But complex? Not even close.

8. The case looks thin: What we see in the complaint is the bare minimum the prosecutor has to reveal to make their case. What you don’t see are all the emails, depositions, interrogations, phone taps, etc. that the prosecutors know about and GS does not. During the litigation discovery process, this material slowly gets turned over (some is held back if there are other pending investigations into GS).

Going back to who the prosecutor in this case is: His legal reputation is he is very thorough, very precise, meticulous litigator. If he decided to recommend bringing a case against the biggest baddest investment house on Wall Street bank, I assure you he has a major arsenal of additional evidence you don’t know about. Yet.

Typically, at a certain point the lawyers will tell their client that the evidence is overwhelming and advise settling. That is around 6-12 months after the suit has begun.

9. This case is Political: I keep hearing that phrase, due to the SEC party vote. It is incorrect. What that means is the case is not political, it means it has been politicized as a defense tactic. There is a huge difference between the two.

10. I’m not a lawyer, but . . . Then you should not be ignorantly commenting on securities litigation. Why don’t you pour yourself a tall glass of STF up and go sit quietly in the corner.

I have $1,000 against any and all comers that GS does not win — they settle or lose in court. Any takers? My money is already in escrow — waiting for yours to join it. Winnings go to the charity of the winners choice.

>

Previously:
Questions Surrounding the SEC’s Litigation vs Goldman (April 17th, 2010)
http://www.ritholtz.com/blog/2010/04/questions-sec-litigation-vs-goldman-sachs/

Category: Corporate Management, Legal

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

141 Responses to “10 Things You Don’t Know (or were misinformed) About the GS Case”

  1. 11. CNBC’s Steve Liesman has taken over the role Charlie Gasparino used to — he appears to be the official designated spokesperson/leakee for Goldman. I find this sort of access Journalism contemptible, but thats just me. It also says some negative things about Charlie’s career move — Fox Biz may not garner enough ratings to waste a leak there.

  2. snapshot says:

    http://www.bloomberg.com/apps/news?pid=20601039&sid=aE6bRM.nVqns

    Big Bank Breakup Time Gets a Boost From Goldman: Simon Johnson

    Second, whether the SEC prevails in court, to mainstream opinion the case confirms – in excruciating detail – what Senator Kaufman, Democrat from Delaware, has been arguing for a considerable time: There is fraud at the heart of Wall Street.”

    I think they settle. No way they want anymore dirty laundry aired in public.

  3. b_thunder says:

    I’d take the bet, but I don’t want to tie my money up for months or years to make 100% return while AMZN, AAPL, PCLN, NFLX and CMG will triple, and total p.o.s. stocks like C, ABK and PIR will go up 5x , thanks to the “liquidity” from the Fed and Goldman’s own front-running HFT algos !!

  4. bayoustjohndavid says:

    “The Timing of this case is suspect”

    What I can’t figure out is why nobody asks Darrell Issa, Orrin Hatch, etal when they think the suit should have been filed. In a couple of weeks, congress would have been debating reform and the timing would still be “suspicious”. In a couple of months, the midterm elections will be fast approaching; I’m sure that the timing would have been called political had the suit been filed in the Summer or Fall. It certainly would have been called a diversion had the suit been filed during the health care debate. So, when would the timing have not been suspect?

  5. barkdog says:

    Interesting GS is using a reporter with the name Lies-man.

  6. “..really bad analysis, sloppy reporting, and just unsupported commentary about..”–BR, above

    that’s really, the m.o./’meal ticket’ of the MSM, no?

    seriously, has there been an Issue, within anyone’s memory, that they’ve, actually, led on–with the Facts?

    http://www.tvnewslies.org/html/explanation.html
    ~~
    past that, nice post, BR .. maybe, if a few others chose to, actually, care to fisk the *Truth of such matters, the MSM wouldn’t have such an easy time misleading its audience..

  7. [...] 10 things you may have wrong about the Goldman/SEC flap.  (TBP) [...]

  8. beatstreet says:

    I’m not disagreeing with anything you said, but the $1,000 bet is silly. You have to define more clearly what a win is. Now that the SEC has filed, there is probably a 90% chance that it goes to settlement – even if GS feels they could win in court, I doubt any competent attorny would advise that. If it does go to trial, that means either GS is even more arrogant than we thought (not likely), or the SEC feels its open and shut and wants a definitive W.

    So just because there is a settlement, doesn’t mean GS loses.

  9. But it means I win the bet !

  10. whydtinigo says:

    A tall glass of STF up – love it. I can not imagine why the press feels the need to defend Goldie -it’s truly perverse

  11. Bomber Girl says:

    GS has lost already, even if they win (or settle) the suit based on legalese, even though I would agree that Paulson’s role was material no matter how you slice it. (With all those pages of disclosure, how did they miss that little detail?) Damage to reputation, etc. Plus the noise and bad press around the enforcement action in my view increases odds of more restrictions on derivatives, and the market reaction across the sector may have as much to do with that as with threat of more lawsuits.

  12. DM RTA says:

    strong post Barry. If you are right about the larger outcome, CNBC’s dedicated on-air support of the management and practices that led to a huge mess will burn its assumed credibility once and for all. The painfully obvious waffling of positions has been messy and transparent. The anti-blogger cable network is being cleanly outdone by those they’d rather disregard.

  13. Casual Observer says:

    This is a perfect example of WHY this is the first blog I come to. AN accurate analysis and the truth laced with FACTS & keen perspective.

    To all of you haters….well, John Stewart can tell you what to do!

  14. bsneath says:

    I’m not a lawyer but I do have experience in what happens to people and organizations when the tide of public opinion turns against them and their power base wanes. There will be a feeding frenzy of attacks by those who believe they have been wronged once they become confident they can do so without retribution. Don’t think Goldman is there yet but at the rate they are going it may be coming soon.

  15. Great post, hope someone takes you up on the bet.

  16. dsawy says:

    My only beefs with this case:

    1. The timing of the case. As in: “What the hell took so long?” Wall Street is rife with corruption and insider dealing, and it took this long to come up with just ONE case?

    What the hell does the SEC do all day? Sit around looking at porn?

    2. Why can’t this case also be used to go after the ratings agencies at the same time? Or, if there isn’t enough evidence in this particular case to go after the ratings agencies, why not find a case that could have pulled the ratings agencies into court on the same case?

    3. If the SEC believes that this is a strong case with strong evidence, then they should not settle. Do not allow Goldman off the hook by letting them write a check “with no admission of wrongdoing.” I want to see the SEC force those SOB’s to admit that they committed fraud, even if it means that GS pays only $1 in restitution, but a lifetime of penalty in lost business.

  17. cognos says:

    Sure, agree 100%… GS settles, pays a sub-$100M fine.

    This is a WEAK case. Its was only voted 3-2 to actually prosecute at all. It hinges on the verbal(?) of a low level employee who appears to be denying that and Paulson says “everyone knew we were short” and it strains credibility to think people did not understand the basic structure of a “synthetic” CDO. (someone HAD to be short, right? thats the whole point!).

    It is the classic awful case — “because bad things happened, we must prosecute”. There is zero evidence of any malice or intentional misleading. There is zero evidience of systematic issues. This is a tiny deal for Goldman. This is one of 100s of similar securities bought by the affected parties. The SEC has nothing else (they always break THE big case first, see Raj).

    Finally – this is 1/100th the case that was brought against GeneralRe in the AIG earnings manipulation.

    GeneralRe — that’s one the largest divisions of BerkshireHathaway — the CEO lost his job and was found guilty in that case. Why the huge sensationalism around some VP at Goldman being the subject of an SEC action on a $25M deal for GS?

    ~~~

    BR: You up for the bet?

  18. AS says:

    From:
    http://www.sec.gov/news/press/2009/2009-31.htm
    as follows:

    Since 2004, Mr. Khuzami, 52, has been General Counsel for the Americas at Deutsche Bank. In that role, he has supervised more than 100 lawyers supporting the bank’s various businesses in the Americas, and has overseen Americas-based litigation and regulatory enforcement actions. From 2002 to 2004, he served as Global Head of Litigation and Regulatory Investigations for the bank.

    Hmmm.

  19. call me ahab says:

    BR-

    great post- your description of Robert Khuzami does indicate that he is indeed a “bad ass”-

    love the way you finished it up – regarding the “layman’s view” from financial pundits-

    “I’m not a lawyer . . . Then . . . Why don’t you pour yourself a tall glass of STF up and go sit quietly in the corner.”

    that gotta good laugh out of me:D

    it appears your “lawyering skills” give you some advantages-

    http://www.youtube.com/watch?v=u5wmParkppw

  20. I should have mentioned: We have no position in Goldman Sachs, nor do our clients.

  21. VennData says:

    “… Goldman lost money on the trade…” they were hedged “elsewhere.” Otherwise they would have lost hundreds of million on hundreds of deals.

    “… this is how the bond markets operate…” No, this is how salesmen operate.

    “…our clients support us…” wait until the investment committees weigh in.

    “… doesn’t bode well for Charlie’s career…” The only people with a brain watching Fox are the writers for the Daily Show.

  22. bondjel says:

    I’m with CasualObserver: This is an example of why this is the only blog I read religiously multiple times a day.

    whydtinigo raises a very interesting question: “why the press feels the need to defend Goldie”. The press seems to primarily lick the rear ends of people in power and my best guess as to why is that (like most of us) they are mostly looking out for their own personal careers and are very careful not to say anything that would make the powerful too angry at them. Most of them don’t want to get a rep as a “populist” (or worse). It takes absolutely no guts at all to side with the Lloyd Blankfeins of the world and, indeed, if you get a rep as a relatively widely attended media type, like Charlie Gasparino or Jim Cramer, you might even get special access to vital bits of information that the Big Boys want you to broadcast to the public. (I think it was in Sorkin’s book TBTF that I read how Fuld et al had Cramer up to Lehman’s posh offices to see if they could enlist his help.) Recall how much “special access” those reporters–who would spread the Bush administration’s propaganda supporting a war against Iraq– received.

    It is the Khuzamis of this world who are rarer than hens’ teeth. Hurray for Mary Schapiro and the Obama administration for having the courage and good sense to appoint this guy. And many, many thanks be to Khuzami who could likely make a zillion times what he makes working for you and me, if instead he worked for Wall Street or big corporations – or the Mob for that matter.

  23. newulm55 says:

    You forgot one thing… federal courts have over a 90% conviction rate at trials. I am not saying they are right this 90% time, more likely the jury thinks the government can do no wrong (they forget that gov and workers have agendas – more convictions more promotions).

    Weather this fact if right or wrong, its going to be a long, long road for GS… I don’t think your going to find a very un-bias jury pool. So, I think these guys will settle and pay whatever amount so long as the principals can stay out of the country club jail. I personally believe they are guilty and the only offer of settlement from the gov should involve lots and lots of jail time, then tell GS – see you at trial!

  24. The Curmudgeon says:

    I am a lawyer, but not one with expertise in securities law and litigation–you should have qualified the STF to any lawyer not practicing in the field.

    That said, I will mostly STF, except to say, my lawyer spidey sense tells me that Mr. Ritholtz is correct on all counts and that this is a huge case, if for no other reason than it represents the first real stab at questioning the legitimacy of investment banking’s money streams. When the government wins (and it ought be considered that the government might not wish to settle–it takes two to tango), the reverberations will be huge, politically and financially.

    I do think the most interesting aspect of this case is the political ramifications of the government turning on its overseers. It’s almost like a slave revolt or something. Lead us to the promised land, Mr. Khuzami.

  25. Moss says:

    Maybe the Money Honey will take you up on the bet. Many, many people need to STF.
    I hope that Khuzami sets a new example certainly looks like he has the mettle.

  26. b_thunder says:

    Barry, i think i found a person who will gladly take your bet:

    http://finance.yahoo.com/tech-ticker/maria-bartiromo-on-goldman-case-where%27s-the-fraud-472525.html;_ylt=AshUUjRzNZ7vkpvF5tbe5Yq7YWsA;_ylu=X3oDMTE2ZXJuYW9mBHBvcwMxMQRzZWMDdG9wU3RvcmllcwRzbGsDbWFyaWFiYXJ0aXJv?tickers=gs,xlf,^dji,^gspc,bac,c,aig&sec=topStories&pos=9&asset=&ccode=

    ok, on second thought, i’m sure you already knew that…

  27. HEHEHE says:

    BR,

    People that call this a weak case are likely a) either long GS and want to dump shares, b) have friends who are long GS and want to dump shares, or c) are on the GS payroll. I get a chuckle how CNBC has so quickly become the mouthpiece for GS via Steve Liesman’s consistent voicing GS’s latest trial balloon defense theories and leaks. I find it refreshingly reassuring that the SEC continues to keep mum. It would seem that if they felt anything that GS has floated in the media would imapct the case they’d be leaking stuff in response. It would appear that GS knows their goose is cooked.

  28. “… doesn’t bode well for Charlie’s career…” The only people with a brain watching Fox are the writers for the Daily Show.

    OK, that was actually funny for once VD

  29. HEHEHE says:

    “”whydtinigo raises a very interesting question: “why the press feels the need to defend Goldie”.”

    Look at who owns the press and your question will be answered.

  30. call me ahab says:

    then of course- we have this-

    “Maria Bartiromo on Goldman case: Where’s the fraud?”- Tech Ticker

    well BR- can you match wits with the likes of Maria Bartiromo? I hear she is pretty smart- a “Rocket Surgeon” or something along those lines- lol

  31. Lugnut says:

    “What the hell does the SEC do all day? Sit around looking at porn?”

    Actually, yes.

    http://news.yahoo.com/s/ap/20100423/ap_on_bi_ge/us_sec_porn

  32. donna says:

    “What the hell does the SEC do all day? Sit around looking at porn?”

    Why, yes, yes, they did!

    http://abcnews.go.com/GMA/sec-pornography-employees-spent-hours-surfing-porn-sites/story?id=10452544

    ~~~

    BR: And Donna, what exactly does that have to do with whether or not Goldman committed fraud?

    I don’t understand the point of your reference — unless you are only looking for things that confirm your belief government can accomplish nothing?

  33. karen says:

    Great, clear, straight up post.. Thank you!

  34. [...] The Big Picture: 10 things you don’t know(or were misinformed) about the GS case [...]

  35. Mannwich says:

    Well done, BR! Cognos, STFU!

  36. Mannwich says:

    Cognos should go work for CNBC. For all I know, he probably is a regular contributor. Would fit in well with that crew.

  37. Mannwich says:

    Also, the people who are defending the Squid are likely banking insiders who are so cocooned in their own little bubble Wall Street, and have been doing shady things their whole lives (and justifying them to themselves) to make their millions, so they’ll never ever come to see just how ethically bankrupt (and in many cases, fraudulent and criminal) those actions were and still are……..It’s just not in their DNA.

  38. muchado says:

    Would love to take the bet (I am on Goldman’s side, not because I think they did the right thing, but because I think the SEC’s case is weak). Only one problem: the decision to settle is often driven by financial or other concerns, not necessarily because one side “lost.”

  39. @ Barry Ritholtz Says: April 23rd, 2010 at 9:55 am

    you just got pulled over by the wrong link police again. I hate ratting you out but you’re a wall street guy

  40. franklin411 says:

    Barry,
    I agree with your points. I haven’t seen Liesman’s reporting on this (I generally watch the Opening Bell and then switch to MSNBC), but he seems fairly balanced most of the time. Is it that he’s an economist and not a lawyer (or rather, legally minded)? I don’t think one has to be a lawyer to understand legal issues, but one does have to be legally minded–ie you can reduce arguments to their essentials, you understand the importance of precedent and judicial procedure, and you can see how a simple line of reasoning can be used to achieve various outcomes in various scenarios. I’ve found that most people aren’t legally minded.

    Second question: Are you willing to accept chickens against your bet? After all, if Republican Nevada Senatorial candidate Sue Lowden has her way, we’ll scrap the health reform law in favor of a system of barter for medical care. So if we lose, can we pay the bet in chickens?

    http://www.youtube.com/watch?v=qZezfjWox5s

  41. One day BR it is going to be some really weird porn in that wrong link and then it is all over man….all over.

    ….and it’s going to be the fans. The ones who actually click on your links

  42. Lariat1 says:

    I also check in numerous times a day. Thank you for concise info. I have been deeply disillusioned with the main stream media since I spent hours years ago screaming at my tv “trusted news personnel”, about those WMDs. Remember them? 4th estate , my ass.

  43. So if GS offs Obama and we go through another Kennedy thing is that technically a loss on that bet of yours?

    Did you calculate for that in the risk/reward scenario? It could skew your numbers quite a bit

  44. Mannwich says:

    @f411: Liesman and “economist”? Really? As someone who puts a lot of credence in academics, for the sake of consistency, I would think you’d do your homework on that one like you did when you ripped Tiabbi’s credentials apart. Liesman was an English major, I believe. He’s no more trained to be an “economist” than my dog is, but no matter – he shills for your hero, so he’s a “good guy” in your eyes.

  45. phb says:

    Hey Cognos – the sky is blue! You are really becoming quite predictable…still enjoy reading your posts and watching you crawl under everyone’s skin.

  46. catman says:

    Posts like this one are the bomb. BR gets his New York on. You could write for the Daily Show. Nothing like a finely tuned bullshit detector and the simmering sense of outrage to state the case point by point.

  47. Mannwich says:

    @phb: Cognos owns GS stock so there you go. He’s even admitted that (to his credit).

  48. franklin411 says:

    @Mannwich
    Considering the fact that the best and brightest trained economists created this mess, do you really think that having an economics pedigree is in any way helpful when it comes to understanding economic issues?

  49. Transor Z says:

    BR,

    Re: #3 and 10(b)-5

    Mens rea is not required but at least a strong inference of scienter is. ;-)

    BTW, has anyone EVER taken you up on your bet challenges??? Maybe if you handicapped the odds of settlement vs. trial verdict you’d get some takers.

    ~~~

    BR: Hey, John Paulson isn’t the only guy who knows how to stack a deck!

  50. Mannwich says:

    @f411: That’s not my point. I’m not at all someone who cares about pedigree, but some of your comments here have indicated that it is YOU who cares about that. I couldn’t care less about it. Just pointing out the apparent contradiction in your stances on it.

  51. diogeron says:

    I use Maria Bartiromo as a contrarian indicator. If she thinks that the SEC doesn’t have a case (did she get an A in clairvoyance?), then I’d double down on Barry’s bet. Maybe she’s been on the GS corporate jet and been briefed on defense and she thinks she has some special insight given her degree from Harvard Law. Oh, wait. She doesn’t have a degree from Harvard Law. As Emily Latilla used to say on SNL, “never mind.”

  52. greg says:

    BR…the only thing I would be worried about if I were you, is the possibility if this goes to trial, Blankfein will probably subpoena God to testify about doing His work. I could see that swaying the jury.

  53. phb says:

    @Mannwich – I don’t fault anyone for owning the teflon-like GS! I mean even the allmightygreatoz himself, Mr. Buffet owns quite a few shares.

  54. franklin411 says:

    @Mannwich
    Yes, but Liesman went to Columbia for his master’s in journalism–one of the premier journalism schools in the world. Taibbi has a BA from Bard College, which I never heard of until I looked him up! There’s a world of difference between a journalist from Columbia (Liesman) and a fiction writer from Bard College (Taibbi).

  55. The Curmudgeon says:

    This is a case of jealousy among the gods. Government thinks it is god. Goldman thinks it was doing god’s work, which it has now been informed is not coincidental with doing the god of government’s work. Who knows who’ll win in the end–not just the case, but the claim of deification. Expect lots of earth-quakings and thunder-rumblings.

    ~~~

    BR: No, this is is a simple case of a broker/salesman who violated securities law when selling a product by lying. It is not a Greek epic, just a weasel who got caught in a fib.

  56. Mannwich says:

    @phb: That’s not my point either. My point is cognos is “talking his book”. Consider why he’s defending them. It’s in HIS own interests that they come out of this unscathed and even more powerful.

    @f411: And your point is? If highly-trained economists steered us into this mess and didn’t have a clue while regular schmucks could see there was a problem, you don’t think that folks like Taibbi could be a better “journalist” (real “journalism” requires some integrity and balls to challenge authority, which Liesman seems to be in short supply of) than an establishment suck-up and hack like Liesman? Please. One doesn’t need a Master’s degree from Columbia in Journalism to do what Taibbi does. Why do you think the blogosphere is so popular today? They are filling the void left by the completely soulless, captive MSM, many of whom have the lofty pedigrees like your hero Liesman. Your hypocrisy is unreal.

  57. Lariat1 says:

    @f411- the Bard kids love to have dreadlocks, hang out at the burrito stand and the air always has a “funny perfume” to it. It is by far, very liberal, very expensive and located near the moonies. Funny, they are not a rowdy bunch especially compared to the Marist drinking crowd down the road a piece. Also if you are a Steely Dan fan you would have heard of Bard.

  58. Transor Z says:

    Kudos to you f411 for your honesty. Personally, I would be embarrassed to admit I had never heard of Bard.

  59. Mannwich says:

    @Transor: But you’re a New Englander, where pedigree still matters culturally. So it’s only natural that you’d know that. ;-)

    People outside of the East coast aren’t as in tune to the whole rich kids prep school and and uber-elite private liberal arts colleges culture. And I can say that as a born and bred New Englander and someone who grew up in the blue collar town next door to THE Groton School.

  60. Lariat1 says:

    @Mannwich: Yes, pretty much surrounded by the private boarding schools in this area, but you know quite a few of us local blue collar families grow up and do OK . We watch the weekenders come up and drain themselves keeping up with all the social stuff they really have to do . Huge keeping up with the Smiths etc. Polo, tennis, golf and fox hunts. They run around all weekend and do you think they ever really relax? I’ll take my 30 some acres in the woods upstate any day over that.

  61. phb says:

    @Mannwich – we agree. I was attempting to point out that lots of deep pockets want to see GS have their hand slapped for being bad boys, but then fully support them on the other side. Perhaps it is believed that GS can take the punishment and vehementization, yet still survive the damage in fine form for the next battle. Politics is indeed at play here, despite what many believe, but GS will not go down over this, in fact they could become this centuries Joe Kennedy as “reform” is created.

  62. mcrcr4 says:

    Barry, good morning.

    Not a securities lawyer but fraud is pretty generic.

    To your point #3, the loss of the $90 mil is a straw man no doubt. But fraud does require a mens rea because its elements are: a statement of material facts about past or present conduct, occurrences or transactions; which is false; which is known to be false when it is made; which is intended to induce reliance in its hearer; which the hearer is entitled to believe is true and on which the hearer relies to his detriment. And I know you know that, you just are not as pedantic as some. Can’t take the bet based on the application of the elements above. It’s a slam for a prosecutor with any experience because the discovery has already been done.

    Best regards,
    RF

  63. Mannwich says:

    Couldn’t agree more, Lariat1, but living out in the Midwest, it’s refreshing how little pedigree really matters here. My next-door neighbor is a local who went to Harvard for his MBA, but the other neighbors here who’ve lived here longer than we have and have known him for a long time never knew that. Bottom line is pedigree’s not important here, even though there are some very smart, highly educated people, so people don’t talk about, generally. On the east coast, it always comes up in conversation somehow. I don’t miss it.

  64. rodmannn says:

    Reading this blog, I get the feeling the Mr. Ritholz thinks Government Regulation can actually work over the long term, which to me is just asinine as it is clear that it does not. So, while I am happy someone is finally going after this organization known as Goldman, I sure hope Mr. Ritholz also feels that the biggest fraud currently being administered is the Fed itself and that it should be dismantled.

    Also, anyone who doesn’t feel this is politically motivated is also the same type of person who thinks we are in Iraq for our own safety and not the fact that their is oil over there. There’s elections coming up and the top worry of voters is Government Corruption. THIS IS POLITICALLY MOTIVATED, but I’ll take it as it is needed.

  65. mbelardes says:

    The legal issues in this are fairly simple for even a novice or a casual observer of securities law to comment on.

    Why is there this attack on people that are analyzing the legal issues and siding with Goldman? You act like there aren’t even any facts or factors that could possibly exonerate Goldman or at least weaken the SEC’s case. I’ve been reading all the attorney arguments in favor of the SEC and on its face it looks like a slam dunk (point 1) but dig down and what makes Paulson’s involvment material? Yeah, this SEC guys is top notch, but you think Goldman’s attorneys completely suck? Goldman is like Al Queda and the Mafia? For some reason, I think those may have been a little easier to prosecute.

    The SEC better have a real smoking gun on this “equity position” Paulson had. I see a few blurred lines such as “Transaction Sponsor” and “selected” and other words in the complaint that make a case, but this IS a serious charge and it appears to have been tied together with a few loose threads (and out of context emails).

    One guy on here compared the whole thing to some unsuspecting shopper buying Pintos after a mechanic gave them a one over. Really?

    So if David Einhorn goes to Goldman in early 2007, says he wants to bet against financials, then Goldman finds sector expert ACA willing to buy financials, Einhorn and ACA discuss which to include and exclude with ACA having the final say, Einhorn gets in AIG, C, LEH, BSC, WM etc and excludes GS, JPM, BAC and even informs ACA he is going short, then ACA agrees to the fund, Goldman wraps up a nice ETF bomb, some other ETF rating company rates it as wicked smaht, ACA sells a 2 year put to Einhorn for additional income/return and the steaming pile of ETF gets shoveled over to ACA, IKB and GS going long too, then the whole thing blows apart in 2008 and Einhorn collects his winnings.

    You’re telling me Einhorn’s initiating the entire transaction because he wants to go short is material to everyone that purchases the ETF? Good luck on that case. And don’t try to say that I spinned the facts because if you read the complaint more than once, that is exactly how the SEC explains it.

    NOW, if Fabulous F-up really did state that Paulson was going to buy $200 million, then there may be something there.

    As for the bet, I picked up a measley 10 shares of GS on Monday at $160 just for fun after reading all the legal issues over the weekend (betting on a no admission of wrong doing settlement). This was before I heard both Goldman’s and Paulson’s version of events.

  66. peter north says:

    Love it, especially #10. Thanks BR.

  67. Lariat1 says:

    @Mannwich, finally last year took 4 plus weeks and drove w/ camper out west. Best vacation ever had in my life. Didn’t even make it to California but did most National Parks. Awesome and you are right about the people. We would have long conversations with locals everywhere, campgrounds, shops, gas stations. Generally much more laid back and respectful of people in general. As much as I love New England , everyone agreed, including two fifteen year old boys, that we left our hearts in Wyoming.

  68. Transor Z says:

    @Manny:

    Except Bard’s in NY, dude. And “Taibbi” isn’t exactly a Brahmin last name!

  69. [...] Ten things you don’t know about the Goldman Case.  (Big Picture) [...]

  70. Mannwich says:

    @Transor: NY and NE have the same obsession with pedigree. Same thing. I’ve lived in both places so I can make that claim! But Taibbi’s dad was a connected exec in NBC, no?

  71. Lariat1 says:

    @Transor: Yea but in that area of NY, it’s on the north west border of CT and MA and all that money that resides there.

  72. flipspiceland says:

    No bet.

    FAS says that they will settle.

    Politics (3-2) says they will settle.

    The fact that Lord Blankfein runs the government and the SEC is essentially a Goldamn Sucks subsidiary and desperate for a reputation enhancement, says they will settle.

    Setting the trash can on fire down the street from the bank to be robbed says they deserve a far more onerous law suit (s) for far more egregious fraudulency (which will happen when Bernie Madoff gets a call to run the Vatican hedge fund).

    And as much sense as it makes to prosecute GS, for any number of crimes, as the writer says above, it would be easier to prosecute the Mafia, and when did common sense ever prevail at an arm of the Federal Government?

  73. mister_x says:

    Alea is concise and clear as usual.
    http://www.aleablog.com/abacus-for-dummies/

    Something worth reading before any accusations/counters are made.

  74. Mannwich says:

    @Lariat1: Precisely my point. A distinction without a difference. I lump the two together for that reason.

  75. beaufou says:

    Paul Jorion (blog in French…sorry)
    http://www.pauljorion.com/blog/?p=10340

    argues that American authorities are usually more decisive when foreign banks are involved.
    China with Fanny and Freddie and France with Societe Generale-AIG.
    The Royal Bank of Scotland, now owned by the British government (85%) lost $840m in this particular case.
    Could we see Paulson dragged in the suit and made to repay some of those ill gotten gains?

  76. AHodge says:

    nice
    i was long big GS fri Ouch! now i am short.
    one thought. liklihood goldman only made the $15 mio on paulson commission and lost $80 mill+ is near zero. to believe they did not make further spread and did not partially hedge overall subprime with ABX or other is absurd.

  77. crookery_ says:

    I’ll take this $1000 bet if a GS/SEC settlement “without admission or denial of liability” (or equiv language) is deemed a draw. Find me on Twitter if you want.

  78. bsneath says:

    Is the withholding of material information from a rating agency a violation of 10-b5?

    Moody’s Analyst: Didn’t Know of Paulson Role in Abacus

    http://online.wsj.com/article/SB10001424052748703709804575202092972748792.html

  79. TDL says:

    BR,
    Nice list. I am less inclined to believe that this is political theater, but I am a cynic when it comes to all things government related. So, will there now be any criminal prosecutions? I doubt it.

    Regards,
    TDL

  80. cdosquared5 says:

    The SEC complaint exhibits minimal understanding of finance and makes disingenuous and misleading arguments, which is why many are not disposed to give the SEC the benefit of the doubt as you appear to be.

  81. TDL says:

    Also, when I see the SEC going after mutual fund managers, pension fund managers (particularly public fund managers), and boards of directors for their negligence then I will have more faith that the SEC is trying to make right. I do not believe this will happen regardless of the merits of the head of the enforcement division.

    Regards,
    TDL

  82. The Curmudgeon says:

    This is a case of jealousy among the gods. Government thinks it is god. Goldman thinks it was doing god’s work, which it has now been informed is not coincidental with doing the god of government’s work. Who knows who’ll win in the end–not just the case, but the claim of deification. Expect lots of earth-quakings and thunder-rumblings.

    ~~~

    BR: No, this is is a simple case of a broker/salesman who violated securities law when selling a product by lying. It is not a Greek epic, just a weasel who got caught in a fib.

    ~~~
    That was mostly just a joke, although you’re right–it would make a nice plot for a Greek tragedy. But it is more than just a salesman violating a securities law. The SEC has a good case, but they always have lots of good cases from which they could choose. There’s no shortage of nefarious financial conduct to which prosecutorial discretion can be appled. That they decided to prosecute this case against these defendants has profound political implications, although it’s hard to tell what exactly they are at the moment, mostly because we have no way of knowing precisely what drove them to decide this case was worth prosecuting. Time will tell. The fact that Goldman seemed caught completely off-guard (if their surprise wasn’t just an act) tells something of the nature of the decision, but things will get clearer in the fullness of time.

  83. arthurcutten says:

    Thank you for this Barry.

    The spin and disinformation is coming in hot and heavy and people love to repeat sound bytes.

    “jesse”

  84. JSchmid says:

    Goldman’s chief executive visited the White House at least four times.

    Read more: http://www.mcclatchydc.com/2010/04/21/92637/goldmans-connections-to-white.html#ixzz0lwtIqsJX

    So you are telling me they were discussing holiday plans!?!?

  85. MorticiaA says:

    Like other comments before mine, I come here a few times a day for columns just like this — the kind that think. That’s so rare among MSM, precisely because they have corporate puppet masters, with CNBC being the poster child.

  86. subscriptionblocker says:

    Thank you, thank you, thank you, thank you!

  87. subscriptionblocker says:

    Please. Let’s see more of these legal observations. This stuff is so remote from normal folks (sorry), we really can’t be faulted for watching with a “yeah right” attitude.

    Do you think there is any chance we’ll see more competence coming to the SEC?

  88. subscriptionblocker says:

    And all those dreams of Goldmanites hanging from light poles :) There may indeed be justice.

    Your post made my day. Thanks for a great weekend.

  89. ToNYC says:

    If somebody takes the other side of your bet before midnight and lets you keep the 90% settlement lock as a Win for you and = Loss for GS, I’ll wax your car if you are within 5 mi of Sag Harbor the week before Memorial Day..however if the bet fades to naught and only finds the other side as a 1,ooo bet against your “lose in court”, you buy me dinner at a worthy place and I’ll tell you about a possible 10-bagger I got working that you have not heard of.

  90. [...] Ritholtz has a good post on the Goldman case. In it he describes Robert Khuzami, the former prsecutor now running the [...]

  91. [...] 10 Things You Don’t Know (or were misinformed) About the GS Case   By Barry Ritholtz – April 23rd, 2010, 7:15AM [...]

  92. gman says:

    I am amazes by all the airplay the “sec porn” story is getting today. The story has been around for months. The fact that Repub. are running around today making a big deal about some porn watching in an organization as large as SEC…and it mostly happened during BUSH admin!…show the level of desperation and pro GS complicity….and the media for that matter!

    Thanks Barry!

  93. hammerandtong2001 says:

    Very active thread…

    There once was an industry which did nothing illegal, sold a product sanctioned by the US Congress, was regulated heavily by numerous US government agencies, had been in business successfully for well over a century. The market leader of this industry was the single largest US taxpayer — ever.

    The industry was accused of wrong-doing, of not “telling the truth” about the product they sold.

    After USJD got done with them, they settled with the attoneys-general of 48 US states for over $200 Billion. And radically changed their business practices, marketing approaches and plenty more, too.

    It’s a good example of what can happen when “society” changes its views on something.

    I’m sure you’ve all heard of cigarettes, Marlboro and Philip Morris and the tobacco industry. No body “likes” the tobacco industry, but about 25% of the adult population in the US smokes cigarettes everyday. The relevant document is the “Master Settlement Agreement of 1998.”

    Bad things can happen when “the people” turn against you. Nearly everybody knows somebody who got sick, with tobacco use being a major contributing cause. An Aunt, a grandparent, a friend’s mom or dad. Or even a spouse, or brother, or sister, or friend.

    You know anybody who didn’t lose money in the stock market in 2008?

    Populism? Sure.

    If Iwere Lloyd, and I’m not, the first phone call I’d make would be to Geoffrey Bible, the former Chairman of Philip Morris, and get a good earful about what can happen when things go badly wrong. Then I’d hang up the phone and call the SEC and ask them what they want — and whatever the SEC said they wanted, I’d put it in a box with a ribbon and deliver it to the SEC personally.

    .

  94. EAR says:

    Thank you, Barry!

    In the coming days/weeks, the MSM desperation for ginormous, bloody headlines will distract them, they’ll rush to cover another event/calamity/situation, where they can inflate its historic implications to attract sheep eyes and simplify it terribly so they don’t glaze over. Keep doin’ what they should have but couldn’t have.

  95. Martin says:

    If the SEC settles without an admission of wrongdoing it will be a travesty. As a former NYC PR guy in financial services, I shudder to think of the consequences of letting them skate. They will be doubly emboldened to just keep cheating, and keep spinning, without any fear that it will ever catch up to them.

  96. diogeron says:

    @lugnut: This was over the past five years. Since the SEC did nothing at all during the Bush administration, who can blame them for biding their time looking at porn? Of course, “porn” as loosely defined, means they missed the real porn while they were looking at cyber-porn.

  97. zell says:

    B.R. by K.O..
    Cognos hangs up his gloves. Probably had stomach cramps from too much Kool Aid.