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Goldman in $550M SEC settlement


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2010 Jul 15, 8:49am   6,963 views  35 comments

by seaside   ➕follow (0)   💰tip ()  

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?

« First        Comments 15 - 35 of 35   

15   bschroder   2010 Jul 17, 3:00pm  

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  

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  

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  

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   2010 Jul 19, 3:32am  

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  

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  

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  

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  

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  

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  

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

26   thomas.wong1986   2010 Jul 22, 12:50pm  

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  

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  

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  

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  

@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  

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  

@ 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  

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  

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  

Perhaps we should go back to fractional trading then.

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