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Goldman in $550M SEC settlement

By seaside   2010 Jul 15, 8:49am   ↑ like   ↓ dislike   3,545 views   35 comments   watch (0)   share   quote  

http://money.cnn.com/2010/07/15/news/companies/SEC_goldman/index.htm

Paying half of the damage they caused is not too bad. It could have been over $3B if it got blasted in full wave.

So, do you think it's fair settlement?

Coupled with wall street reform bill, what will be happening in wall street?

Comments 1-35 of 35     Last »

1   thomas.wong1986   2010 Jul 15, 12:15pm  ↑ like   ↓ dislike   quote   top   bottom   home   share  

What damage ? One party bet against the other.

I saw Obamas press annoucement regarding Goldman and FinReg. It was pathetic!

http://www.cnbc.com/id/15840232?video=1544605569&play=1

See :35 "families have failed to see appreciation on their home values"

Holly Cow! Did someone ever tell Obama prices were in a bubble to begin with, even before the lax lending.
Prices one way or another were headed south, It was unsustainable. These folks are still drinking koolaid and justifying higher home prices, regardless if incomes and inflation are down.

Where is the reform to tell the public, prices of homes only go up at rate of inflation?

2   seaside   2010 Jul 15, 1:53pm  ↑ like   ↓ dislike   quote   top   bottom   home   share  

thomas.

The demage part is quite vague to me too. They got accused by SEC over $1B doing business behind the people back in April. So, let's call that amount the demage they caused. :)

So theoratically, the government can force them pay 3X the demage, and that hasn't happen. I guess the baldman in GS chose to keep his butt low at this time, went to negotiation than taking litigation. Something like this happens regulary b/w government and all sort of firms. Remember Astro Zenica got fined $320M by DOJ and DHHS few months ago? They could have gotten away with less than that amounts though, they contested and got butt kicked in the court at the end.

OK, I saw that video. Yeah, that was pathetic lip service that won't blow.
But that's not directly relevant to my questions. So, would you tell me what do you think is gonna happen in wall street due to GS settlement and what they called reform?

3   tatupu70   2010 Jul 16, 6:44am  ↑ like   ↓ dislike   quote   top   bottom   home   share  

thomas.wong1986 says

What damage ? One party bet against the other.

Not really. I'm not an expert on the details of the case by any means, but GS basically bet against the very product they were selling unbeknownst to those who bought it. At the very least, it smells fishy. At worst, GS purposely built a portfolio that they knew would bust and then let people buy into it--while they bet against it.

4   Theo   2010 Jul 16, 6:48am  ↑ like   ↓ dislike   quote   top   bottom   home   share  

This whole Financial Overhaul bill is one of the biggest scams ever. There is no recovery. How can there be recovery those 6 million lost jobs aren't coming back? LOL! They think building ditches and water plants is economic recovery. Do you know of any private businesses hiring. That's where real recovery is.

5   tatupu70   2010 Jul 16, 6:58am  ↑ like   ↓ dislike   quote   top   bottom   home   share  

Theo says

This whole Financial Overhaul bill is one of the biggest scams ever. There is no recovery. How can there be recovery those 6 million lost jobs aren’t coming back? LOL! They think building ditches and water plants is economic recovery. Do you know of any private businesses hiring. That’s where real recovery is.

The financial overhaul bill isn't meant to create jobs. Where did you get that idea?

6   Theo   2010 Jul 16, 8:25am  ↑ like   ↓ dislike   quote   top   bottom   home   share  

I was just generalizing that everyone is trying to paint is a pretty picture.

7   thomas.wong1986   2010 Jul 16, 8:25am  ↑ like   ↓ dislike   quote   top   bottom   home   share  

tatupu70 says

Not really. I’m not an expert on the details of the case by any means, but GS basically bet against the very product they were selling unbeknownst to those who bought it. At the very least, it smells fishy. At worst, GS purposely built a portfolio that they knew would bust and then let people buy into it–while they bet against it.

No GS didnt bet against it, a Hedge fund run by Paulsen did. ACA came in and wanted to bet long, while Paulsen walked in and wanted to short it.

The SEC further alleged that "Tourre also misled ACA into believing that Paulson invested approximately $200 million in the equity of ABACUS 2007-ACI (a long position) and, accordingly, that Paulson's interests in the collateral section [sic] process were aligned with ACA's when in reality Paulson's interests were sharply conflicting." Goldman Sachs stated that the firm never represented to ACA that Paulson was to be a long investor, and that as normal business practice, market makers do not disclose the identities of a buyer to a seller and vice versa.

How different is that if a broker like Charles Schwab had sold securities/mutual fund to everyday investors seeking to hold long term, but also time to time took a short position in one of its portfolio's (on that same security/fund) calling it a contrafund.

8   thomas.wong1986   2010 Jul 16, 8:39am  ↑ like   ↓ dislike   quote   top   bottom   home   share  

seaside says

So, would you tell me what do you think is gonna happen in wall street due to GS settlement and what they called reform?

This is just another shackdown, Chicago style.

9   tatupu70   2010 Jul 16, 9:32am  ↑ like   ↓ dislike   quote   top   bottom   home   share  

thomas.wong1986 says

How different is that if a broker like Charles Schwab had sold securities/mutual fund to everyday investors seeking to hold long term, but also time to time took a short position in one of its portfolio’s (on that same security/fund) calling it a contrafund

What's different is that they hand picked the securities in the portfolio. It would be like if Charles Schwab created a mutual fund of all the stocks they think are dogs and peddled it to unsuspecting investors. While at the same time shorting those stocks.

10   MarkInSF   2010 Jul 16, 4:48pm  ↑ like   ↓ dislike   quote   top   bottom   home   share  

tatupu70 says

What’s different is that they hand picked the securities in the portfolio.

w/o disclosing the conflict of interest.

11   MarkInSF   2010 Jul 16, 5:00pm  ↑ like   ↓ dislike   quote   top   bottom   home   share  

thomas.wong1986 says

ACA came in and wanted to bet long, while Paulsen walked in and wanted to short it.

You assume everybody is GAMBLING.

Synthetic CDO's were set up to mimic traditional securities that bundled mortgages. Which most people use to, um, you know, save money for the future?

When you put money in the bank are you BETTING LONG?

12   thomas.wong1986   2010 Jul 17, 9:03am  ↑ like   ↓ dislike   quote   top   bottom   home   share  

tatupu70 says

What’s different is that they hand picked the securities in the portfolio. It would be like if Charles Schwab created a mutual fund of all the stocks they think are dogs and peddled it to unsuspecting investors. While at the same time shorting those stocks.

All mortgages were dogs, because they were bought during a price bubble. Trying to tell someone back in 2002-2006 home prices were in a bubble, got you only laughs. Even not that long ago, people were defending the Palo Alto fortess, as being bullet proof.

The same analogy is true with Merril Lynch B2B holder funds set up ML back at the peak 2001.
B2B Internet HOLDRs (BHH), anyone could figure they were paying on overly priced securities. There were dogs all over the place. Trying telling that to the public! No dice!

13   Vicente   2010 Jul 17, 10:07am  ↑ like   ↓ dislike   quote   top   bottom   home   share  

Only 550 Million? Pshaw!

A handful of their top executives could have paid that out of pocket. They got RICH off many billions they reaped from AIG, various "special programs", that "bank holding company" nonsense giving a hedge fund access to same protections as retail banks, straight-out fraud, plus their conflicting roles as "market maker" & prop-trader & advisors.

Bernie Madoff we sent to jail. These guys we give them a parking ticket and let them go, quite frankly I find it offensively inadequate. We should re-enact Glass-Steagall and put these con-men back in their place.

The squid is laughing at you.

14   ¥   2010 Jul 17, 10:24am  ↑ like   ↓ dislike   quote   top   bottom   home   share  

thomas.wong1986 says

people were defending the Palo Alto fortess, as being bullet proof.

well, not bullet proof, but bullet resistant. We're never going to see 2003 prices there, unless the entire state turns into the Soylent Green future.

15   bschroder   2010 Jul 17, 3:00pm  ↑ like   ↓ dislike   quote   top   bottom   home   share  

I guess, to pay devil's advocate - you can only go so far in fining Goldman without damaging the rest of the economy right? If it is high enough to do some real damage, then you're damaging all the other companies that relate to GS.

On the other hand, why not set it high enough to hurt - so that there is some teeth in it?

16   seaside   2010 Jul 17, 4:46pm  ↑ like   ↓ dislike   quote   top   bottom   home   share  

bschroder says

On the other hand, why not set it high enough to hurt - so that there is some teeth in it?

Government agencies do set high purnishment fine, but the amount is subject to negotiation depending on the situation. That does not mean government won't purnish fraudalent firms. They do punch in the face whatever the firm is, when the firm openly contest against government to the end. It just is not happening often, and most firms stop contesting before government got really pissed off. We, people, hearing settlement news in few months means GS is well aware of it, and tried cut the deal by coorperating government in exchange of lifting charges.

17   tatupu70   2010 Jul 17, 10:28pm  ↑ like   ↓ dislike   quote   top   bottom   home   share  

thomas.wong1986 says

All mortgages were dogs, because they were bought during a price bubble.

I know it may seem this way sometimes, but I'm sure you know that's not true...

thomas.wong1986 says

The same analogy is true with Merril Lynch B2B holder funds set up ML back at the peak 2001.
B2B Internet HOLDRs (BHH), anyone could figure they were paying on overly priced securities. There were dogs all over the place. Trying telling that to the public! No dice!

No--I think you're still missing the point. If GS had simply offered to sell an MBS that's one thing. In that case it is like your analogy. It's not against the law to for GS or Merril Lynch to let investors buy or sell whatever stock or security they want. But, in this case, GS designed the MBS, then bet against it while selling it to unsuspecting investors. Conflict of interest, indeed.

18   bschroder   2010 Jul 18, 1:14am  ↑ like   ↓ dislike   quote   top   bottom   home   share  

Interesting that WSJ mentions this: "The SEC commissioners often split on party lines over policy decisions, but rarely do so on such high-profile enforcement cases."

http://online.wsj.com/article/SB10001424052748704229004575371601322076426.html?mod=googlenews_wsj

... would have been nice if they mentioned past high-profile cases since I doubt most people keep tabs on SEC politics.

19   bob2356 (59/60 = 98% civil)   2010 Jul 19, 3:32am  ↑ like   ↓ dislike   quote   top   bottom   home   share  

bschroder says

I guess, to pay devil’s advocate - you can only go so far in fining Goldman without damaging the rest of the economy right? If it is high enough to do some real damage, then you’re damaging all the other companies that relate to GS.
On the other hand, why not set it high enough to hurt - so that there is some teeth in it?

GS makes something like 80% of their revenue "trading" (thanks to the miracle of high speed trading aka front running aka insider trading GS hasn't had a losing day on the stock market the entire first quarter) in the stock market. If they were to disappear the only real effect would be a moderate drop in the volume of the stock markets and a sharp drop in the Hampton's real estate market. Losing GS would be a plus to the economy.

20   permanent_marker   2010 Jul 19, 4:44am  ↑ like   ↓ dislike   quote   top   bottom   home   share  

I think SEC focused on 'getting the largest fine', so they can gloat for the cameras.

But I think, it would have been far more enlightining to the public and embarassing to Goldmen if they were took to trail, and dragged through the mud.

Prosecutor : "now tell me Mr Banker... you sold your client a swap called SUCKR and you bet against it going down. Tell me how that works"

With the live cameras in court-room these days, these could have been huge learning experience for American Public.

oh well....

I guess the 'smarter ones' do work at Goldman

21   thomas.wong1986   2010 Jul 19, 5:18pm  ↑ like   ↓ dislike   quote   top   bottom   home   share  

permanent_marker says

Prosecutor : “now tell me Mr Banker… you sold your client a swap called SUCKR and you bet against it going down. Tell me how that works”

With the live cameras in court-room these days, these could have been huge learning experience for American Public.

To have a lawyer understand anything Financial is pratically impossible. A lefty-lawyer in Congress with an Ax to grind is a Stalinist show trial.

Yes, Investment Banking has taken a hit, and a few other things will as well. After this is gone, who will pick up the pieces!

Investment banking is divided into two divisions and includes Financial Advisory (mergers and acquisitions, investitures, corporate defense activities, restructuring and spin-offs) and Underwriting (public offerings and private placements of equity, equity-related and debt instruments). Goldman Sachs is one of the leading M&A advisory firms, often topping the league tables in terms of transaction size.

This will be painfully felt in Silicon Valley.

22   thomas.wong1986   2010 Jul 19, 5:50pm  ↑ like   ↓ dislike   quote   top   bottom   home   share  

tatupu70 says

No–I think you’re still missing the point. If GS had simply offered to sell an MBS that’s one thing. In that case it is like your analogy. It’s not against the law to for GS or Merril Lynch to let investors buy or sell whatever stock or security they want. But, in this case, GS designed the MBS, then bet against it while selling it to unsuspecting investors. Conflict of interest, indeed.

Goldman issued a statement on the same day the suit was filed, saying the SEC's charges were "unfounded in law and fact" and giving specific reasons as to why. The firm stated it had provided extensive disclosure to the long investors in the CDO, that the firm also lost money, that ACA selected the portfolio without the firm suggesting Paulson was to be a long investor, and that ACA was itself the largest purchaser of the Abacus pool, investing $951 million. Goldman also stated that any investor losses resulted from the overall negative performance of the entire sector, rather than from a particular security in the CDO. Goldman issued an additional public comment in response to the suit on April 19, 2010, raising additional points in their favor. While some have called these statements misleading, others believe Goldman has a strong defense or that the SEC has a weak case.

So did GS make or loss money? If your right they made money, and their Auditors some how overlooked that mistatement and inflated earnings, which comes to constructive fraud. Which is it?

The one who reaped profits, $1B, was Paulson and Company. Some said John Paulson hand picked the toxic CDOs other said it was ACA management. So why didnt the SEC sue P&C.

23   MarkInSF   2010 Jul 20, 4:30pm  ↑ like   ↓ dislike   quote   top   bottom   home   share  

thomas.wong1986 says

The one who reaped profits, $1B, was Paulson and Company. Some said John Paulson hand picked the toxic CDOs other said it was ACA management. So why didnt the SEC sue P&C.

Simple. Paulson made no misrepresentation. But he could not have pulled off his winning deal without Goldman, who was willing to misrepresent him as a neutral party in exchange for a nice fee. Which is a crime.

Frankly it's amazing to me that people go to prison for 10 year for petty theft, but white collar criminals do crimes that rip people off for millions, and the only one that even potentially pays the price is the corporate entity they were working for at the time.

24   Vicente   2010 Jul 20, 5:59pm  ↑ like   ↓ dislike   quote   top   bottom   home   share  

thomas.wong1986 says

Goldman Sachs is one of the leading M&A advisory firms, often topping the league tables in terms of transaction size.
This will be painfully felt in Silicon Valley.

Horsehockey! Goldman Sachs makes bulk of money from proprietary trading. Advising clients is a flea on the dog, so to speak. They are a hedge fund, plain and simple. All attempts to cast themselves as facilitators of the economy, is just dog&pony nonsense for the gullible. I'm sure if Lloyd Blankfein thought he could pull it off, he would get plastic surgery to look like a young Jimmy Stewart so he could sell you some snake oil to make you believe he's just a small-town boy helping keep Bedford Falls from turning into Pottersville. All middleman like to tell you how VITAL they are.

25   Mr.Stewart   2010 Jul 22, 8:19am  ↑ like (1)   ↓ dislike   quote   top   bottom   home   share  

Not enough punishment for me, should have been 4 times that amount.

26   thomas.wong1986   2010 Jul 22, 12:50pm  ↑ like   ↓ dislike   quote   top   bottom   home   share  

MarkInSF says

Simple. Paulson made no misrepresentation. But he could not have pulled off his winning deal without Goldman, who was willing to misrepresent him as a neutral party in exchange for a nice fee. Which is a crime.

Can you prove a crime was commited ? Do you have evidence/testimony or just newspaper cut outs, opinion columns you read ? What do the European investors who bought the toxic investments have to say in the matter ? Why didnt they bring a lawsuit in the matter against GS for fraud ? Strange you dont hear from them...

27   thomas.wong1986   2010 Jul 22, 12:52pm  ↑ like   ↓ dislike   quote   top   bottom   home   share  

Vicente says

Horsehockey! Goldman Sachs makes bulk of money from proprietary trading.

How is the weather up in Davis.. No I dont expect someone up there to had any dealings with GS, MP, or MS. Doubtful you even saw one in person.

28   MarkInSF   2010 Jul 22, 5:26pm  ↑ like   ↓ dislike   quote   top   bottom   home   share  

thomas.wong1986 says

MarkInSF says

Simple. Paulson made no misrepresentation. But he could not have pulled off his winning deal without Goldman, who was willing to misrepresent him as a neutral party in exchange for a nice fee. Which is a crime.

Can you prove a crime was commited ? Do you have evidence/testimony or just newspaper cut outs, opinion columns you read ? What do the European investors who bought the toxic investments have to say in the matter ? Why didnt they bring a lawsuit in the matter against GS for fraud ? Strange you dont hear from them…

Why do you think GS settled? Half a billion is good chunk of change. If they thought they could have won in court for a few 10's of millions in fees to legal council they would have.

Of course they were guilty.

29   MarkInSF   2010 Jul 22, 5:37pm  ↑ like   ↓ dislike   quote   top   bottom   home   share  

Vicente says

Horsehockey! Goldman Sachs makes bulk of money from proprietary trading. Advising clients is a flea on the dog, so to speak.

Advising clients is how they do their proprietary trading. Companies come to them for assistance , exposing their positions, and Goldman trades on that information.

It's not rocket science. If you're the one that can see everybody else's cards, of course you're going to win.

30   pkennedy   2010 Jul 23, 5:01am  ↑ like   ↓ dislike   quote   top   bottom   home   share  

@MarkInSF

It's unlikely anything would have been proved. Had it been provable, the fines would be much larger and/or court dates set.

What a case like this does it create uncertainty, rumors and a constant stream of news. By settling now, they get rid of *ALL* of that. 500M to get rid of that is nothing. Ask someone in 6 months what major events took place at GS this year, and they won't have a clue.

Rarely are these things legally based, they're just good for business.

31   Vicente   2010 Jul 23, 7:48am  ↑ like   ↓ dislike   quote   top   bottom   home   share  

thomas.wong1986 says

How is the weather up in Davis.. No I dont expect someone up there to had any dealings with GS, MP, or MS. Doubtful you even saw one in person.

Actually have a cousin who is a regional manager for The Squid. Weather is fine here thanks for asking.

Believe thunderlips is dead-on. They don't create value any more than any other middlemen. They do create a terrific impression of being vital cogs despite this. The problem is the tail is wagging the dog, that has to stop. I don't begrudge the tail it's entire existence, but it's role must be downsized.

32   permanent_marker   2010 Jul 23, 8:02am  ↑ like   ↓ dislike   quote   top   bottom   home   share  

@ thunderlips11
That was an amazing image, explaining high-frequency trading.

This is what happens bright students who could have been engineers/doctors went to Wall Street. They come up with these brilliant (and evil) things.
Sad state of affairs....

33   thomas.wong1986   2010 Jul 23, 10:35am  ↑ like   ↓ dislike   quote   top   bottom   home   share  

thunderlips11 says

Goldman Front-Runs their advice. They tell clients to buy something, then get ahead of the trade. Or their client says they want something. So they put themselves ahead of the client. They don’t even need to use HFT, but I’m sure it helps:

Pesky Evil Computers! Milliseconds.... So how does that explain when a customer gets a price better than market?

34   Vicente   2010 Jul 24, 3:47am  ↑ like   ↓ dislike   quote   top   bottom   home   share  

thomas.wong1986 says

So how does that explain when a customer gets a price better than market?

Vegas knows the art of preserving the illusion of the little guy becoming a Big Winner. So does Wall Street. You toss out a few bones now and then to keep the peasants playing the game.

35   thomas.wong1986   2010 Jul 24, 3:58am  ↑ like   ↓ dislike   quote   top   bottom   home   share  

Perhaps we should go back to fractional trading then.

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