SEC Sues Goldman Sachs
Looks like another Magnetar type story:
SEC Charges Goldman Sachs With Fraud in Structuring and Marketing of CDO Tied to Subprime Mortgages
Washington, D.C., April 16, 2010 — The Securities and Exchange Commission today charged Goldman, Sachs & Co. and one of its vice presidents for defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter.
Additional MaterialsThe SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO
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April 16th, 2010 at 11:01 am
One precedent would be a nice beginning.
April 16th, 2010 at 11:05 am
This is good news for investors. It starts to bring the faith pendulum back to fairness (let us call it semi-fairness).
April 16th, 2010 at 11:08 am
The cynic in me can’t help but think this is nothing but a dog and pony show. Planned incompetence from the get-go with the only result being an early acquittal.
Prove me wrong, SEC. Prove me wrong.
April 16th, 2010 at 11:11 am
“The product was new and complex but the deception and conflicts are old and simple,” said Robert Khuzami, Director of the Division of Enforcement. ”
Paulson and Co had a hand in structuring the CDO and had a short position in it-and the Co in Paulson and CO??
Alan Greenspan, who had NO IDEA there was gambling going on here……
here are you’re winnings sir
oh thank you very much!!!!
This is as close as the conspiracy theorists are gonna get, I wonder how long it takes the MSM to report on the Greenspan angle????
April 16th, 2010 at 11:13 am
The best news for investors for a long time….and the market is in a sell off. I guess “civil” means nobody’s going into a cell with Big LeRoy. Bummer.
April 16th, 2010 at 11:14 am
RICO the bastards.
April 16th, 2010 at 11:26 am
Who knew? The SEC exists to protect the interests of CDO purchasers from the Great Vampire Squid. Silly me, I thought, if they had any raison d’etre whatsover, it was in protecting unsophisticated investors from getting gamed by the players. I’m sure the poor purchasers of those CDO’s weren’t industry insiders. My TD Ameritrade account always pulls up a virtual supermarket of CDO’s and hedge funds with which I can invest my meager savings.
This case is all you need to know about why the SEC is worse than useless. It pretends to stamp the imprimateur of legitimacy to everything from balance sheets to earnings per share for the retail investor, but really only operates as an industry tool. Although it will be sorta fun watching them go after the politically-convenient whipping boy Goldman, this action has absolutely nothing to do with why the capital markets need a real watchdog. Eliot Spitzer, even with all his faults, was better than the SEC in exposing for the little guy all the shenanigans Wall Street plays with its Main Street investors. At least he, and to some extent his successor, Andrew Cuomo, tried to do what a regulator that works for the people should do.
April 16th, 2010 at 11:27 am
@billykaos
Greenie didn’t join Paulson until early ”08, after the criminal activity alleged in the SEC complaint. (Not that I’m a fan of Greenie’s, but the facts are the facts.)
April 16th, 2010 at 11:41 am
Just a reminder: a $33 million SEC settlement rounds to zero.
April 16th, 2010 at 11:44 am
The Curmudgeon Says:
“My TD Ameritrade account always pulls up a virtual supermarket of CDO’s and hedge funds with which I can invest my meager savings”
———————-
LOL, I knew I should have switched from E*Trade!
April 16th, 2010 at 11:46 am
Obama might be the flip side of Bush. Under the radar genius.
April 16th, 2010 at 11:48 am
[...] SEC Sues Goldman Sachs (TBP) [...]
April 16th, 2010 at 11:49 am
Curm,
sounds like you should be checking out Interactive Brokers..
http://www.interactivebrokers.com/ibg/main.php
~~
to the Post:
yes, the idea that this set-up was set up, to be taken down, sounds more Factual every day, no?
Theory, my eye~
April 16th, 2010 at 12:00 pm
The Tea Partiers need to get out there are stop this.
April 16th, 2010 at 12:04 pm
Goldman Sachs’s New Palace
http://online.wsj.com/article/SB10001424052702303828304575180581255747658.html
April 16th, 2010 at 12:06 pm
America! Fuck yea!
April 16th, 2010 at 12:19 pm
Mark E Hoffer,
Do they have streaming quotes and GainsKeeper? My Schedule D1 for 2009 has 81 pages. I don’t like the per share commission rate, anyway. This can get pretty expensive for orders with higher volume. I prefer the per trade flat fee at TD Ameritrade.
April 16th, 2010 at 12:20 pm
Segway back to the tax burden comments of a couple days ago, I guess we want to make sure the GS employees (and the rest of them) who mades 10′s of millions selling shite, don’t pay too much in taxes, that wouldn’t be right, not the American way? We want to keep the top marginal rate down for people who expoit and blow up the financial system….
April 16th, 2010 at 12:36 pm
Interesting that they didn’t charge Paulson who was all over the trade.
April 16th, 2010 at 12:36 pm
Markets down almost 2% on the news.
April 16th, 2010 at 12:37 pm
It’s a good thing that all the brokers have arbitration agreements with their clients. We don’t want any of those big lawsuits to recover the money since those evil lawyers would get some. Better to let Goldman keep it.
April 16th, 2010 at 12:39 pm
Yes, Finally!!!! I knew this f-ing market could not continue to rise for absolutely no – I mean NO reason. Barry, I hope you reversed all your longs and got your shorts in place this AM.
I will have to say I can’t stand BHO, but with him allowing the SEC to go after Goldman Sucks, I may have to rethink my position.
I’ve been so heavy in cash waiting, just waiting for something like this to happen. Hallelujah!!!!
April 16th, 2010 at 12:49 pm
Goldman just borrowed 80 million from the discount window to pay the fine….
April 16th, 2010 at 12:57 pm
How can what Paulson did be even close to ethical?
If the intent of the CDO was for long investors how can his involvement be legal.
This shit really smells.
April 16th, 2010 at 12:59 pm
@sharfy: LOL!!!!!!!! Thanks for the laugh today. You’re probably right.
April 16th, 2010 at 1:00 pm
@Moss: I agree 1,000%. Call me when Paulson is charged as well. Make that both “Paulson”s. ;-)
April 16th, 2010 at 1:13 pm
About time!!!! Nail them to the wall and start the f@#king water-boarding.
April 16th, 2010 at 1:17 pm
Few things:
I don’t see how they can charge Paulson (yet), he doesn’t owe any responsibility to disclose as a client, whereas Goldman as the issuer of the security does. The SEC is alleging they did not disclose in the offering docs.
SEC also alleges that Tourre misled ACA into believing Paulson was long. Apparently, there was a meeting between reps from GS, ACA and Paulson at Paulson’s offices. It also seems the SEC has an e-mail trail where Paulson & Co. sent a list of securities to GS which was then forwarded to ACA with the suggestion that this should be the basis for the CDO. Internal GS documents allegedly are clear that GS would buy protection on the CDO.
I wonder whether Fabrice will cop a plea (or come back to the US since it seems he now works in London), and if he does who else gets implicated. If the details are gnarly enough, then it may reach Paulson and then there may be an attempt at dis-gorgement from Paulson and Co. (kind of like going after profits of Madoff investors who were closely linked).
Also from the complaint: “The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest, civil penalties and other appropriate and necessary equitable relief from both defendants.” Injunctive relief is interestingly vague, could they be looking to halt GS from participating in certain markets, ala Volcker rule?
The actual complaint is worth a read. The SEC alleges that GS’s motive for withholding Paulson’s involvement was that the deal would be difficult to market if it were disclosed (duh!).
Curiouser and curiouser…
April 16th, 2010 at 1:21 pm
@dedude – funny
I just visualized Dick Cheney waterboarding Lloyd Blankfein at gitmo.
“tell me where the swaps are Lloyd and this can end….”
April 16th, 2010 at 1:28 pm
“Looks like another Magnetar type story.”
Sure does, just another distraction. If a crime is committed then you pursue criminal charges. Furthermore, Goldman Sachs did not do anything here, employees of GS did. If this goes all the way up the chain, then you press criminal charges against the board, the management team, and the individuals involved. This is all political theater. I guess the SEC will at least get the additional funding they have been begging for!
Regards,
TDL
April 16th, 2010 at 1:39 pm
Why this isn’t just about a $15 million fee
From the complaint:
“In late 2007, ABN was acquired by a consortium of banks that included the Royal Bank of Scotland (“RBS”). On or about August 7, 2008, RBS unwound ABN’s super senior position in ABACUS 2007-AC1 by paying GS&Co $840,909,090. Most of this money was subsequently paid by GS&Co to Paulson.”
and then further
“Granting such equitable relief as may be appropriate or necessary for the benefit of investors pursuant to Section 21(d)(5) of the Exchange Act [15 U.S.C. § 78u(d)(5)] .”
also, something about the injunctive relief they want:
“Permanently restraining and enjoining GS&Co and Tourre from violating Section 17(a) of the Securities Act [15 U.S.C. §77q(a)], Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Exchange Act Rule 10b-5 [17 C.F.R. § 240.10b-5];”
April 16th, 2010 at 1:46 pm
Nothing like rocking the boat on settlement day. The VIX has been winding up, and I wasn’t seeing the spike until Tuesday. Darn it! Just when you start zeroing in they raise the ante. Frustrating
April 16th, 2010 at 2:00 pm
A shot fired across the bow to the banksters lobbying Congress to block Wall Street reforms.
Can’t wait to see the perps with their cuffed hands hidden under overcoats slinking out the doors, followed by US Marshalls pulling dollies loaded with evidence boxes.
Interesting that this all happened on the day after Tax Day.
April 16th, 2010 at 2:03 pm
Cynical Chicago view here.
#1. Barry’s fellow bloggers and new media folks (Yves, George Washington, ProPublica) have a story releasd in the past few days tying a huge hedge-fund source of subprimes into the White House chief of staff, Rahm Emanuel.
#2. As a general matter, Obama;s folks know how the public is viewing things, and are looking for someone somewhere already to run up a flag pole.
#3. William Daley, brother of Richie, and former DNC chief, is a midwest regional manager for JP Morgan.
#4. Conclusion? Pin the tale on the nearest giant target that is not tied into Rahm, but don’t pin the tale on JP Morgan.
My guess is that this is an attempt at diversions from the Rahm Emanuel story from the last week or so. If it was bad for the White House, it would have been announced AFTER the close of business today.
April 16th, 2010 at 2:11 pm
Behind every fortune there is a crime. This civil suit just confirms Matt Taibbi’s Rolling Stone expose on Goldman. Why should anyone be surprised. They will settle with the Gov’t, write a check and still make gazillions in their next scam!
April 16th, 2010 at 2:16 pm
@subir @1:17 pm: That’s just boilerplate civil complaint request-for-relief language. At this point, I think the facts in the complaint are the most compelling thing to watch.
April 16th, 2010 at 2:35 pm
Do I remember correctly that after the dot-com implosion there was a big splashy case against the big banks? And that case was settled for $2 billion? And then, having learned that the fine would be no more than a rounding error in the bonus pool, the banks proceeded to play even bigger games?
Some London bookmaker should run odds on whether the fine will be larger than 1% of the bonuses granted from 2001-2009.
April 16th, 2010 at 2:41 pm
Exactly what is the point of civil penalties? I don’t mean for GS particularly, but in general? To compensate the harmed party, and to create deterrence for others who might do similar acts.
How much would the fines have to be to accomplish those goals? Seriously, if the fines to the TBTF banks are less than $100 billion, then this is nothing more than a slap on the wrist. A mere cost of doing business. Besides, the TBTF banks got more than that number from the government anyway.
Someone explain to me how on earth a civil suit will create deterrence for the future?
There are two remedies that would have teeth:
-> Criminal prosecution for fraud
-> Suspension from the securities/finance industry under SEC & FINRA rules
April 16th, 2010 at 2:43 pm
[...] SEC Sues Goldman Sachs (TBP) [...]
April 16th, 2010 at 3:12 pm
Hee hee:
38. Similarly, a 65-page flip book for ABACUS 2007-AC1 finalized by GS&Co on or about February 26, 2007 represented on its cover page that the reference portfolio of RMBS had been “Selected by ACA Management, LLC.” The flip book included a 28-page overview of ACA describing its business strategy, senior management team, investment philosophy, expertise, track record and credit selection process, together with a 7-page section of biographical information on ACA officers and employees. Investors were assured that the party selecting the portfolio had an “alignment of economic interest” with investors. This document contained no mention of Paulson, its economic interests in the transaction, or its role in selecting the reference portfolio.
39. Tourre had primary responsibility for preparing the term sheet and flip book. (p. 12)
————————————–
Relief sought… Imposing civil monetary penalties on GS&Co and Tourre pursuant to Section 20(d)(2) of the Securities Act [15 U.S.C. § 77t (d)(2)] and Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)]….
How it works:
The Securities Act assesses civil penalties according to a three-tier system. First-tier penalties are imposed for any violation of the Securities Act. Second-tier penalties are imposed for violations involving “fraud, deceit, manipulation or deliberate or reckless disregard of a regulatory requirement.” Third-tier penalties are imposed for violations that (1) involve “fraud, deceit, manipulation, or reckless disregard for a regulatory requirement” and (2) “directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other persons.”
Clearly, we’re talking third-tier penalties in this case.
Courts have calculated third-tier civil penalties in two ways. First, by multiplying a defendant’s violations by a dollar amount. Second, by imposing a flat penalty equal to a defendant’s gross pecuniary gain. Courts also consider five factors when calculating civil penalties: (1) the degree of scienter [i.e., evil intent/sophistication] involved; (2) the isolated or recurrent nature of the infraction; (3) the defendant’s recognition of the wrongful nature of his conduct; (4) the likelihood, because of the defendant’s professional occupation, that future violations might occur; and (5) the sincerity of the defendant’s assurances against future violations.
I suspect GS will max out on all factors on these alleged facts. However, federal courts can be reluctant to have the civil penalty amount exceed the amount of disgorgement for Securities Act violations. So if GS’s liability for disgorgement were found to be $1 billion total, courts are likely to look at that figure as a potential ceiling for civil penalties, as well. That’s not a hard-and-fast rule since, technically, the trial judge has “broad discretion” to fashion an appropriate penalty, but…
April 16th, 2010 at 5:43 pm
ACA was trading under the assumed name of Manifold manf-5. Looks like they went bust because they were insuring some of the crap CDO’s they sponsored. Interesting article from Calculated Risk talking about risk dealing with ACA back in Nov – 2007
http://www.calculatedriskblog.com/2007/11/aca-capital.html
Seems that ACA and Goldman Sachs may have stepped on a few wall street toes.
“So a downgrade would effectively wipe out ACA, and the counterparty (the Investment Banks) would be left without insurance for their CDOs.”
April 16th, 2010 at 8:03 pm
/2Josh Says:
April 16th, 2010 at 2:03 pm
Cynical Chicago view here.
#1. Barry’s fellow bloggers and new media folks (Yves, George Washington, ProPublica) have a story releasd in the past few days tying a huge hedge-fund source of subprimes into the White House chief of staff, Rahm Emanuel.
#2. As a general matter, Obama;s folks know how the public is viewing things, and are looking for someone somewhere already to run up a flag pole.
#3. William Daley, brother of Richie, and former DNC chief, is a midwest regional manager for JP Morgan.
#4. Conclusion? Pin the tale on the nearest giant target that is not tied into Rahm, but don’t pin the tale on JP Morgan.
My guess is that this is an attempt at diversions from the Rahm Emanuel story from the last week or so. If it was bad for the White House, it would have been announced AFTER the close of business today.
———-
Don’t quite see what “Goldman” has to do with Rahm…but probably…down the road…there are ties there.
But,…First Things First! What was “Goldman” UP TO? And why did this story break early into “Options Expiration” with very weak credentials.
That’s the question…..
April 17th, 2010 at 12:20 am
What a coincidence! Just when Zero needs public support for his Wall Street “reforms,” this lawsuit against GS comes along. As soon as it’s signed into law, the suit will evaporate on some lame technicality and GS will skate. One hand washes the other.
This isn’t rocket science- follow the money and you’ll find truth.
April 17th, 2010 at 1:18 am
I got some Magnetar stories for you.
HEARD ON THE STREETJANUARY 14, 2008
A Fund Behind Astronomical Losses
http://online.wsj.com/article/SB120027155742887331.html?mod%3Dhpp_us_whats_news
Magnetar CEO Alec Litowitz: Proud Democrat
Sun, 04/11/2010 – 1:05pm — lambert
http://www.correntewire.com/magnetar_ceo_alec_litowitz_proud_democrat
Don’t Want To Read That Gigantic Report About The Hedge Fund Magnetar? Here’s The Condensed Version
Courtesy of Courtney Comstock at Clusterstock/Business Insider
http://www.philstockworld.com/2010/04/11/dont-want-to-read-that-gigantic-report-about-the-hedge-fund-magnetar/
Macroeconomic Resilience
towards a more resilient macroeconomy
The Magnetar Trade
http://www.macroresilience.com/2010/04/11/the-magnetar-trade/
But the administration has ProPublica.com running agitation and propaganda puff pieces to obscure the connection between the Magnetar Capital, the Milken crooks, Rahm Emanuel, Blago, and Barack Obama, so all of this little Magnetar unpleasantness should get washed out soon.
April 17th, 2010 at 12:14 pm
Is GS only has cynical people?
This is wonderful story was happened at Lehman Brothers company. Before world economy collapse.
http://knol.google.com/k/alex-belov/what-killed-lehman/1xmqm1l0s4ys/16#
Please read it.
April 17th, 2010 at 12:18 pm
hahhahahahahaaha-
make me laugh- although TZ makes a great observation-
VennData as usual says the same thing- blah blah blah blah blah Tea Party blah blah blah blah-
the subject could be about reaching Mars in Obama’s lifetime- lol- and ol’ VD would bring up the Tea Party-
dude- is there soemthing we need know- why the incredible fascination- it just doesn’t seem healthy
but I did hear 57% of tea baggers liked Bush- 43% didn’t- that’s all you need to know about the Tea Party- right BR- lol