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SEC Charges Goldman Sachs with Fraud

Posted by Larry Doyle on April 16, 2010 11:21 AM |

The Washington Post just reports, SEC Accuses Goldman Sachs of Civil Fraud:

The Securities and Exchange Commission announced Friday civil fraud charges against Goldman Sachs and one of its vice presidents. The agency alleges that the company marketed complex subprime mortgage securities and failed to disclose to investors that a major hedge fund had bet against the securities.

Goldman Sachs shares fell 7.4 percent.

Goldman was down 7.4% and is now down 14%!! This opens an enormous can of worms for the entire industry.

What other dealers engaged in similar activities? Hedge fund manager John Paulson who made billions in shorting the sub-prime market is being tied to this investigation. If Paulson aided and abetted a fraud, then he deserves to pay in spades. Sense on Cents will be monitoring closely. If it is deemed that Goldman did commit fraud, all people involved are supposed to pay with more than just fines.

Let’s go back to March 2, 2010 when I appeared on CNBC’s Street Signs and warned of Goldman’s greatest risk (at the 3-minute mark of the video):

LD

  • Bill

    Just God’s work. I heard a piece on NPR this week about some CDO that I think JPM put together and which cratered. JPM took a hit on it, or the JPM shareholders did, but the bankers that put it together made out like el bandido. But there was this hedge fund Magnetar that was involved in the process and the selection of the product that went into the CDO. According to the piece, Magnetar wanted the worst stuff put into it to enhance the likelihood of failure. Then the hedge fund shorted it and made a killing. Sounds like the exact same scenario. You’d think these hedge funds would have exposure, but this indicates they don’t. I guess it’s just more legalized theft that we’d all best get used to–like the auction rate securities market.

    http://www.investorprotection.com/blog/2010/04/12/magnetar-hedge-fund-sheds-new-insight-into-wall-street%E2%80%99s-dark-side/

  • Bill

    One other point. Months from now, after the hoopla dies down, there’ll probably be an announcement that the SEC has settled the case with GS, which will pay a few million bucks fine, a drop in the bucket of what they made off the deal. Course, there’s still the likelihood of private civil actions.

  • divvytrader

    Dick Bove was asked after news broke what he thought and he all but laughed and said to buy the crap out of GS once the falling knife sticks …… they probably announce $10 EPS next week and go to moon . Keep in mind SEC seems to be limiting blame / accusations to a single 31 yr old salesman ?

    • LD

      If Paulson were involved in selecting the actual mortgages in the deal, and that was not disclosed, then that would seem to warrant a potential charge of aiding and abetting.

      • Bill

        LD, you’d think there would be some illegality, civil or otherwise there. That piece I linked to indicated what Magnetar did was legal, and it sounds same as the GS case. I didn’t read the whole piece, but I plan to.

  • STP

    Mr. Doyle,

    Lost in the Goldman Sachs news today was the Inspector General’s report of the SEC investigation of Allen Stanford.

    Accident? I think not. 151 pages of pure reading delight.

    Read every posting of yours, and especially enjoy your dogged pursuit of Mary Shapiro. Thank you for what you do. This has all seemed so hopeless for the last 15 months, but maybe the worm is starting to turn.

  • Matt

    Larry –

    STP is right on with the IG report on Stanford’s Ponzi scheme. This is very interesting that this report comes out on the very same day that the SEC makes their biggest accusation since Madoff turned himself in. According to the Stanford report, the SEC knew about Stanford’s Ponzi scheme for over 11 years before they finally brought charges, and that the head of enforcement for the Fort Worth, Texas SEC Office played a significant role in quashing any investigation of Stanford. THEN, that same SEC head of enforcement later became Stanford’s attorney in 2006!!!! Unbelievable. This is a very damning report on the SEC, and it happens to be relased on the exact same day the SEC files charges against Goldman Sachs. Interesting!

    Matt

  • phil trupp

    As long as we’re into the long-overdue investigative mode at SEC, perhaps it’s time for a real game changer. I believe the President should direct the Department of Justice to investigate the commission and its management. We expect insider deals and criminal behavior on Wall Street. But what about the regulator, the cops? How many deals have been cut by SEC insiders? Who’s hiding what? We’ve gotten beyond the point of excusing the commission’s incompetence based on alleged lack of money or poor staffing requirements. Truth is there’s plenty of money in SEC’s budget, and while more staff would be helpful, there’s no excuse for having missed Madoff, Stanford, ARS, to name just a few. Something is going on inside the commission that doesn’t pass the smell test. It’s time for DOJ to begin a top to bottom “review” of this pathetic Wall Street watchdog.

    • LD

      Phil,

      I concur. Although I think there should be an independent investigation of both the SEC and FINRA, I do not expect an investigation of the SEC. I do think investors should mandate that there be an independent investigation of FINRA.

      • phil trupp

        I’m pleased that we together on the basic premise. While I am completely in agreement with you re: FINRA, I wonder if investors have the clout to gin up an independent investigation. It would take an organized outcry at an institutional level to probe FINRA’s mysterious ways. The SEC, however, is a public institution funded by tax dollars, and here we have a undeniable right to call for an investigation. It may prove helpful to explore the mechanisms of the Wall Street-SEC nexus. The DOJ might set up an independent investigative body that reports directly to Eric Holder or to whomever is heading up the department at any given time. It definitely takes two to tango (pardon the cliche), and the SEC is a very visible partner in the ongoing neglect of the country’s economic well-being.

  • Bill

    When it comes to any investigation of their activities, FINRA claims it’s a private entity not subject to disclosure. When somebody sues FINRA, it claims it has quasi governmental status with attendant immunity. Sort of like one of those mythical two headed dogs or some such.






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