Events have led us back to our continuing series of oversight into the goings on of all-too-rare Wall Street prosecutions, and the terrible media coverage that accompanies them. The awful media story of the day is Andrew Ross Sorkin’s botched NYT coverage of the fabulous Fabrice Tourre prosecution for Rule 10B-5.

The punditry did a terrible job on initial go round with Goldman Sachs Abacus case; this is an inauspicious start with the Fabulous Fab Tourre case from NYT. The column reeks of defense attorney spin, expertly flacked. As anyone who understands security law knows, prosecutors are extemely limited about what they can say in public about an active litigation (Rights of the accused and all that). This allows clever defense lawyers to find gullible journalists to dupe with a one sided set of ridiculous accusations, knowing full well that the SEC cannot respond. The goal may be to help sway potential jurors; it could also pressure the case outside of the court room.

The defense hit paydirt in legal gullibility with Sorkin: Conspiratorially headlined “Trader’s Day in Court May Lack Some Details,” the article goes on to explain in painstaking details what is being kept from the jury. It also laughably makes claim this minor individual case is a stand in for all the other cases not brought to suit by the SEC:

“The trial is seen within the S.E.C. and on Wall Street as a referendum on Goldman Sachs and the government’s case, which was never argued in front of a jury.

But the jury may never hear the full account if the S.E.C. gets its way.”

Sadly, no: I cannot begin to explain how completely erroneous the above statements are. No, this is not a referendum on Goldman Sachs. I do not believe ANYONE at the SEC believes this simple 10b-5 case is about anything other material misrepresentations in the sale of a security.

On the other hand, this is what a defense attorney says — My client is being made a scapegoat for the entire financial collapse! – not what the SEC thinks.

And no, this is not about keeping the jury in the dark about the facts of the case. The facts, as we first discussed in these pages three years ago, this is a simple Rule 10b-5 case. The Security and Exchange laws, first passed in 1934 (see 17 C.F.R. 240.10b-5). It explicitly outlaws all practices that are” Manipulative and Deceptive.”

“Rule 10b-5: Employment of Manipulative and Deceptive Practices”:

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,
(a) To employ any device, scheme, or artifice to defraud,
(b) 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
(c) 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.”

There is a rich history of 10b-5 prosecution, the statute is specific, the case law well settled, and the evidentiary standards are well known. You don’t have to show the clients were actively misled, or they should have known better, ot yhey wer or were not sophisticated investors. The prosecution doesn’t even have to show the salesman knew (or should have known) he was being deceptive. There is no mens rea (guilty mind) component; there is no need to prove actual deception on the buyer; what the buyer knew or should have known is irrelevant.

All a prosecutor has to demonstrate is that the sales pitch was deceptive, and that deception was material.

The laundry list of insinuated hints in Sorkin’s article about what the SEC is hiding from the jury is just so much nonsense. He either does not understand Security law of 10b-5 or simply prefers to carry the defense’s water. I cannot explain how the NYT let such a slipshod article slip through its editorial processes, but there you have it. Further I am astonished that there is not a single quote from a lawyer to give any context. The standard operating procedure is for the journalist to grab a quote from a former prosecutor to provide 2 sided context. This allows someone to speak for the prosecutor, who cannot discuss the active case in public. This was a noticeable omission and defines the article as not only one-sided, but erroneous in the extreme.

What about ACA not being declared “a victim of the fraud” by the SEC? The answer, quite simply, is that unlike TRUE victims (in an SEC legal sense) ACA Capital has redress — ACA can file a civil suit against Goldman Sachs to recover their losses. And indeed, that is precisely what they did in 2011. Earlier this year, they won the right to add John Paulson to the litigation as well.

End of story, next case please.



Rule 10b-5: Manipulative and Deceptive Practices  (April 20th, 2010)

Fabrice Tourre/Goldman Emails  (April 25th, 2010)

Its the Law, Bitches!  (July 19th, 2010)

Who Steered You Wrong About the GS Case?  (July 16th, 2010)

Trader’s Day in Court May Lack Some Details
NYT, July 8, 2013

Category: Financial Press, Legal, Really, really bad calls

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.

13 Responses to “Dealbook’s Sorkin Blows The Return of the Fabulous Fab”

  1. Orange14 says:

    I’m not an attorney but when I read Sorkin’s column it really didn’t make sense. Thanks for the clarification. Let’s hope justice is served with the Fabulous Fab.

  2. BennyProfane says:

    I guess the thing about Sorkin that separates him from the obvious “ball garglers” on my TV is that, well, (a) he works for the NYT, which somehow gives him some liberal credibility to those who think the NYT is actually a voice for the downtrodden, and, (b) he looks like such a trustworthy young man, somebody your grandmother would fawn over at a family wedding, and, he would probably fawn back. Such a nice boy, almost the exact opposite of the glorified used car salesman shouters in pin striped double breasted suits on CNBC. He certainly has hitched his wagon to some sick horses, though. Squawk Box? That’s not going to look too good on his resume.

  3. jolietjim says:

    A really, really nice job of writing, Barry. One of your better pieces. But: the daily typos and grammatical goofs are like loud farts in the Queen of the Night aria in The Magic Flute. Or if you’re into other music, triple flutterblasts in “Here Comes The Sun” or “Misty” or…you get the idea.

    I spent a career writing ads and free lance travel/adventure pieces. Your wife probably uses a shampoo and conditioner I made the number one brand in America. I gots me a spell checker, and I know how to write a sentence without the sound effects.

    Just sent me your stuff before you stick it on the web. I will cleanse and beautify it so, gee, it smells terrific, with bounce, body and Shine! Shine! Shine!

    And, yeah, Sorkin is a little butt-sucking parasite who pimps for Wall Street. The mask came off in that TV documentary he stunk up. Wonder what his ultimate aim is. It can’t be to be just to have a career as a financial writer for the Times. Maybe he wants to run a hedge fund or become a rich consultant and be on Con NBC every day.

    One day soon, we’ll know.

    • Les Lofton says:

      Yeah, Barry, why don’t you let jolietjim help you write beuatiful prose like “I gots me a spell checker.”

  4. cynical says:

    Agreed on the non derogatory Sorkin assessment.

    I think whether or not Paulson was investing is not material. First Paulson could change his mind/position before the deal closed. Or Paulson could be lying to or leading on GS to curry favor on something else he wants. In a synthetic CDO beyond not relying on that piece of information it is crazy to think it is material. You are marrying it and need to do your own diligence. I am not saying reckless and lazy investors might not allow it to affect their decision but that it between them and their customers. The simple fact is for every buyer there is a seller. Always. Everywhere. So if not Paulson someone of size is on the other side of this trade. Too many if and buts to make it material. Does the buyer always ask who is the seller? Nice to know but not material.

    The disclosure document probably identified GS as the shorting c/p (via CDS with the trust). Are we to believe that other than for credit purposes it is material who the short c/p was? And the investors knew that the famed GS was their c/p….that opens an entire round of new questions if it is indeed material.

    Btw – Any issues with the ridiculous media take-down of Fab via the SEC? Pretty sure the defense did not turn over the “Fabulous Fab” email to the NYT. A 28 year old kid bragging to a girl…..the shock and horror. My lord what a monster.

  5. Bam_Man says:

    There is no such thing as “journalism” anywhere in today’s corporate/government-controlled MSM.
    Sorkin is proving that again and again.

  6. Greg0658 says:

    I swear we are so connected via ooouuooo waves .. was just yelling at the CNBC earlier

    we need to disconnect from the Corporate Stocks world as taxpayers ..
    we need to enact a Law that tells Wall Street they need their own court system .. sides need their own lawyers, courts and judges of fair & balance

    that may require a separation from the Federal Reserve ..
    the US Treasury may need a coinage upwards of the Platinum Coin

    that should save the world from the dualSuperNovas
    .. all evident buyer beware

    Return the Laboring Peoples Money to the ability to store into the Future
    (the laws of incorporation are to powerful)

  7. Liquidity Trader says:

    If you do not want to be called a “shameless, ball-gargling prostitute for Wall Street” by the likes of Matt Taibbi, perhaps you should consider spending less time on your knees.

  8. gman says:

    A big problem we face in this nations is most of what the public “knows about most topics is spun from this dynamic..another great teaching moment.

    • Rich in NJ says:

      Media consolidation will only make the problem worse, and harder to counteract.

  9. Crocodile Chuck says:

    The headline “Sorkin Blows” is enough, thanks.

  10. palimpsest says:

    categorizing Sorkin as “gullible” is like describing Madoff as being bad with delegating.

  11. [...] I critiqued Andrew Ross Sorkin’s column (Dealbook’s Sorkin Blows The Return of the Fabulous Fab) for a variety of journalistic [...]