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The Only Real Question Regarding Goldman’s Settlement with the SEC

Posted by Larry Doyle on July 16, 2010 7:34 AM |

Who’s next?

We can debate all day long whether the settlement of SEC charges against Goldman Sachs for $550 million is fair or not. While that debate will occur all over Wall Street and throughout the world of global finance today, the question regarding the size of this settlement is not important in and of itself. I am not saying that $550 million is not a lot of money. Nor am I saying that Goldman may be getting off easy. The only question I have is, “Who’s next? ”

Are we to think that the Goldman Abacus-CDO transaction is the only ABS-backed CDO that employed improper marketing? Do not be so naive. In fact, if Goldman employed improper marketing in one deal, are we to believe they did not do the same in many others? Do you ever find just one mouse?

The Goldman Abacus deal was a $2 billion transaction. A sizable transaction, correct? Yes and no. We truly need to look at the Abacus deal in terms of the overall ABS-CDO market. How big was that market? Slightly more than $1 trillion in ABS-CDOs were underwritten by Wall Street from the beginning of 2006 until the market froze in early 2008. (Source: Asset-Backed Alert; credit to Anna Katherine Barnett-Hart for providing this source in her honors thesis at Harvard)

Simple math indicates that the Abacus deal represented .2% of the total market. The question begs as to what percentage of the market employed improper marketing. If 5% of the market, then is Wall Street looking at approximately a $15 billion tab? Does 10% generate a $30 billion tab? If 25% of the deals were improperly marketed, are we looking at $75 billion coming back to the American taxpayer?

If we could steal a phrase used on every playground hoop court worldwide but very applicable to this situation with Goldman, Wall Street at large, and the SEC, “Who’s got next?”


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  • Lou

    Think the lawyers for all the other banks are working overtime right now? Will be very interesting to see what the SEC does. Honestly it should not be all that difficult to compare and contrast marketing materials for other CDOs with those utilized for Abacus. A couple of good SEC paralegals should be able to do it in a few weeks.

  • Bruce

    Come on, LD, this had to have been the only deal with improper marketing. All the others must have been on the up and up. Let’s trust them, ok!!

  • Mike

    too bad they won’t touch anything ARS related w/ a ten foot pole.

    • LD

      I am not holding my breath on that.

  • Phil

    So let’s get this straight, a firm can get fined $550 million for ‘improper marketing’ but there was no other fraud that occurred?

    Yea, right!!

  • fred

    ACA now suing GS for fraud contending GS knowingly told, then failed to correct the mistatement, that hedger Paulson was long Abacus when in fact he was short.

    If SEC was aware of this fraud, as they must have been, why did they 1) settle and 2)without any admission of wrongdoing by GS.

    Update: 1/06/2011 No other cases of mismarketing have been brought by the SEC against any other issuers of ABS-CDO securities.

    • LD


      Great find, but you are correct, where are the regulators and the prosecutors to pursue this case. Regulators at the SEC did not know this at the time? Not believable. Thanks for bringing this to our attention.

      ACA Sues Goldman Sachs Over Abacus

      But in the suit filed Thursday, ACA painted a picture of what it claimed was an outright deception. ACA alleges that when Goldman hired it to be the agent selecting the portfolio of bonds for the deal — bonds suggested by Paulson — Goldman’s representatives concealed Paulson’s intentions.

      “Knowledge of Paulson’s true economic interests would have raised a red flag and caused senior ACA personnel to decline to approve any participation in the transaction,” the suit said.

      …and who’s next??

      Thank you, Fred!!

      • fred

        LD, there is a post on Zero Hedge yesterday alleging GS told ACA that Paulson was not only involved in the security selection process but was also LONG Abacus.

        The Reuters story you cited does not include any reference to Paulsons alleged LONG position.

        LD, in your experience is ZH a credible source? If so, why the omission from the Reuters story of this VERY important mistatement by GS of a Paulson LONG position?

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