http://www.nytimes.com/2010/04/17/business/17goldman.html This was mentioned in stock thread, but I feel this needs it own thread. I for one am shocked GS got in trouble with all the things they get away with. Will these charges stick?
I'm reading the complaint right now, it's a semi-complicated theory. Basically they're alleging that GS played both sides of the fence, essentially that it structured a bunch of CDO's so that hedge fund superstar John Paulson could short them and make a bunch of money, which he did, which is not technically illegal, but that they did not disclose Paulson's role in helping assemble the CDO's that he was going to short in the offering docs, which is illegal. The SEC's theory in a nutshell is that they helped Paulson to find some suckers to trade with without disclosing that the game was rigged. One of the e-mails quoted looks pretty bad but who knows the context. I don't think, however, that the gov't can recover all THAT much, since GS only netted about $15 mm from the transaction in fees. But then who knows how high the additional penalties they will want to tack on will be.
I would assume SEC thinks it can prove Goldman knew Paulson was going short when it marketed the securities. Wonder what kind of trouble Paulson is in if he indeed paid GS to structure the deals he knew was going to be crap.
My reading is that Paulson's not in any trouble, since he wasn't really the one attempting to induce the purchase or sale of a security, he can't be held liable for GS's allegedly false & misleading disclosures.
I was just about to post this topic. I do find it a bit surprising that Goldman Sachs is being charged considering how many people in government have come from there. In a way I find it heartening that even with that many ties to they can still be charged.
Screw the money. How about jail time for Mr. Paulson and/or the folks at Goldman Sachs? I guess the SEC prefers to go after Martha Stewart or some guy who gets an insider stock tip from his cousin who works at a small company. An example like that would help the country a lot.
I received this email today from the GS Office of Alumni Relations: New York, NY, April 16, 2010 -- The Goldman Sachs Group, Inc. (NYSE: GS) responds to a complaint filed by the SEC today. The SEC’s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation. The Goldman Sachs Group, Inc. is a leading global investment banking, securities and investment management firm that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. Founded in 1869, the firm is headquartered in New York and maintains offices in London, Frankfurt, Tokyo, Hong Kong and other major financial centers around the world. lol
GS was lead underwriter on the Obama IPO. Today's charade looks like a big media horse & pony show to give John P. Mortgageholder a sense of satisfaction that the government is doing right by him for once and finally taking it to the fatcats.
They fire Fabulous Fab and that's all that's going to happen. Fab will probably then go to Paulson & Co.
More than likely this won't stick. This looks to be more of a token prosecution of the biggest guy on the block to scare the rest of the major players on Wall Street. I am still adamant that the Wall Street bankers have not learned their lesson and have been treated, by and large, with kid gloves thus far in the process. The root cause of the crisis is not incompetence, it was outright greed coupled with lack of ethics and fraudulent creative accounting practices that allowed these banks to make their balance sheets look better than they really were. To reiterate what Jim Chanos and other major investors have said, if you examine the numbers and the balance sheets and the enormity of the fraud that took place, the only possible conclusion would be that a massive intentional fraud took place to cook the books and mislead investors. This was Enron all over again except 10 times bigger.
More bad news for GS.... http://ca.news.yahoo.com/s/capress/100417/business/eu_germany_us_goldman_sachs Report: German government may consider legal action in Goldman Sachs case BERLIN - The German government may consider taking legal action in a case in which Goldman Sachs & Co. is accused of defrauding investors, a newspaper reported Saturday. The U.S. government alleges Goldman Sachs sold mortgage investments without telling buyers they were crafted with input from a client who was betting on them failing. Buyers included German bank IKB Deutsche Industriebank AG - an early victim of the financial crisis that was rescued by the state-owned KfW development bank among others. The Welt am Sonntag newspaper quoted Chancellor Angela Merkel's spokesman, UIrich Wilhelm, as saying that German regulator BaFin will ask the U.S. Securities and Exchange Commission for information. "After a careful evaluation of the documents, we will examine legal steps," he said, according to the report. There was no immediate confirmation from the government. The SEC says IKB lost nearly all its US$150 million investment. IKB issued a profit warning in 2007, saying it had been hurt by U.S. subprime mortgage investments. IKB was sold in 2008 to Dallas-based Lone Star Fun
Going after Paulson would be... 1. Futile, 2. Stupid, and 3. A waste of judicial and prosecutorial resources. It was GS that allegedly misrepresented the securities to investors, not Paulson. There is no evidence that Paulson did anything noteworthy here except make money. Are you suggesting that it is illegal to make money when others lose money? If so, you are outlawing investment generally. The arguably illegal activity here is the alleged misrepresentations, which was done by GS, not Paulson.
I suppose if you don't consider helping create the investment vehicles and hand selecting the securities that would go in them to a company with which he has a significant amount of influence with the intent of betting against them "not noteworthy" Paulson's just a fortunate benefactor of an investment opportunity. More then likely IMO, he's breached some sort of undue influence, disclosure or fair trade provision. If he hasn't -- them rules got to be beefed up. I'd like to see jail time here (for the GS guys involved -- and a tentative booking for Paulson). Fines just come from the company kitty. These guys don't mind playing with house money for potential personal gains.
Refman - I don't know if you've read the complaint but Paulson (formerly hailed as a lone wolf genius) comes out looking pretty shady - he basically hand picked and designed a piece of garbage security in cahoots with Goldman and they went out an found some suckers to take the other side of his bet. That's not the same story that we've been hearing about him previously. The only reason why he hasn't been sued here is that it's so difficult to get secondary actors under section 10-b. I wouldn't be surprised if Cuomo takes a look at a Martin Act case against him, which gives the state AG a lot more leeway than the SEC has.
I have not had a chance to read the entire complaint. I have it saved and intend to read it entirely ASAP. To be clear, I think that Paulson is completely shady. I think Paulson certainly was involved, but there is an ocean of difference between what I think and what can be proved beyond a reasonable doubt in Court. I will opine on this more once I have read the complaint in full.
