About That SEC Complaint Against Goldman

Now that it’s been disclosed that the SEC commissioner’s vote to sue Goldman Sachs for fraud came down to a party line vote, the action takes on the appearance of a vehicle to advance a political agenda. But there is a lot more to this story than just that. As Felix Salmon noted, Goldman should have seen this coming. Granted, Goldman poured a ton of money into the Democrat’s coffers during the past decade but apparently they weren’t paying much attention to what their money was buying during the past sixteen months. As the political sage Al Wilson said, Silly woman, you knew I was a snake when you brought me home.

In my opinion it doesn’t appear that Goldman did anything illegal in the Abacus transactions that are at the heart of the SEC complaint. But that doesn’t mean that there wasn’t some monumentally bad judgment exhibited by Goldman’s senior management when they approved the deals and later responded to the SEC. The SEC, having been publicly humiliated by the Bernard Madoff and Allen Stanford ponzi schemes, could be easily suspected of seeking some high profile payback. Enter Goldman Sachs, circa August 2008, when the SEC first inquired about the Goldman trades in question. Goldman never disclosed that they were under investigation and had received a Wells Notice. Goldman argues that it should have received some deference from the SEC before the commission publicly announced its action on Friday. About that argument Karl Denninger says this:

Here’s the problem with claiming that Goldman was “blindsided” by the filing – the firm never filed an 8K on the Wells Notice!

In my opinion Goldman was not entitled to deference of any sort. Remember, they are accused in this case of trying to deceive investors by not telling them that Paulson had a hand in selecting the securities that went into the Abacus deal in question, naming only ACA as the agent that performed that function.

But the fact that Goldman did not file an 8-K on the Wells Notice makes quite clear that the firm believed it would be able to dodge this one, perhaps through the pulling of “inside” strings in Treasury and the SEC.

That strategy – obscure, pretend and browbeat behind the scenes – failed in this instance as it damn well should in every instance.

You’re only entitled to have a regulator work with you if you don’t erect your middle finger in their direction, and Goldman clearly and unambiguously did by failing to file the 8K notice to the market that it had been served last year.

That this suit serves the political goals of the Obama administration is truly ironic because that same administration’s financial benefactor, Goldman Sachs, will have to pay up at some point and admit they became the sucker in this particular poker game. But more interesting is that Democrats, now released from the Goldman financial bonds, want to feast on the entire industry:

….the floodwall holding all the pent-up Goldman inquiries finally breaks. The latest comes from Hugh Son at Bloomberg who informs that Elijah Cummings and Peter Defazio now insist that the SEC should “widen its probe to determine whether securities backed by bailed-out insurer American International Group Inc. were improperly created.” And “should any of these transactions be found to include fraudulent conduct, any resulting contractual payments from AIG- issued credit-default swaps could be viewed as ill-gotten gains.”

Bankers should file this as Exhibit A on why not to give money to liberal Democrats that reserve for themselves the exclusive priveledge to rewrite the rules of the game. Instead they should remember the maxim that a snake is a snake.

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Posted by on April 19, 2010.
Filed under Barack Obama, Business, Charles Schumer, Congress, Democrats, House of Representatives, Politicians, Politics, Senate.
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  • GarandFan

    I’m sure they’re pining for the old days, when a politician that was brought, stayed brought.

    Of course Barry could give back those campaign funds, but something tells me he won’t.

  • Stan

    Serves them right. Goldman Sachs was the brains behind the TARP and Porkulous packages. Goldmna figured on making a mint from the business that they would receive from the Dems. They didn’t kick back enough cash to Pelosi, Reid and Obama and now they are in deep shit, being the subject of a major SEC investigation. What would make my day is when the SEC and Congress get deeper into the skulduggery and find that every top leaders in the Democrat controlled House and Senate and Obama, gets whacked with accepting illegal campaign contribution from Goldman.

    Funny how AIG was run by a huge Republican donor (Hank Greenburg) got the shaft by the very same people and when the dust settled he came out smelling like a rose. Even more funny, is the main push behind the illegal prosecution of Greenburg, got caught in a whorehouse with his pants down and had to resign the governorship of the state of New York.

  • Baron Von Ottomatic

    I saw “SEC complaint against” and my first thought was “recruiting violation at University of Florida…”

  • Morrissimo

    Good to see the ever-sharp Mr. Denninger’s analysis referenced herein.

    And while I do think that ye ol’ Goldman Sachs, the king of the vampire squid, is in fact guilty of these charges, the timing is suspect. “Bread and circuses” doesn’t just mean sports, pop divas, and Medicare — political power theater can serve the purpose of distracting we the people mob just as well as anything else.

    Be vigilant.

  • Steve Crickmore

    I suppose it is only acceptable at Wizbang, to charge and prosecute investment banks for fraud, when some Republican prosecutor like Rudy Guilani prosecutes and convicts junk bond kings, like Milken or insider traders like convicted Ivan Boesky. I suppose then HughS would welcome such prosecution, depending on the political stripe of the prosecutor.

    But now, it is the Democrats, who are called “snakes”, when the prelimary evidence is strong that some senior Goldman Sachs executives who gave to both parties, far from being victims or “suckers”, were engaged in duplicity and defrauding some of their big investors.

    Though, as Alan Derkowitz writes ‘the rules of the game’, as Hugh refers to them, are pretty awful, and purposefully vague to favor the investment community, not the public or the investor:

    The lack of clear and specific rules, especially regarding conflicts of interest, relegate the SEC to charging generic “fraud,” which denies the accused fair warning and substitutes vague tests such as “dirty pool” or “smell,” both of which Goldman fails. The irony is that the last thing the financial community wants is clarity and specificity, since vagueness gives them a competitive advantage.

    To be sure, neither Goldman not its vice president has been charged with criminal fraud. Paulson was charged with nothing, though he could easily have been charged with conspiracy to defraud– an even more elastic concept. The only proceeding, at least for now, is a civil lawsuit.

  • poptoy

    Burn em.

  • http://wizbangblog.com Jay Tea

    That’d be “Dershowitz,” Steve. Not “Derkowitz.”

    And the lack of criminal charges, to me, indicates the SEC doesn’t think they have the proof that will meet the “beyond a reasonable doubt” standard, and only thinks it can meet the “preponderance of evidence” standard.

    And just who wrote those rules and laws, anyway?

    My hunch is that Barney Frank knows all too well… and if he doesn’t, Tim Geithner surely does.

    J.

  • Adrian Browne

    Your flirtation with Populism didn’t last very long.

  • Hank

    “Your flirtation with Populism didn’t last very long.”

    Adrian, you ought to try flirting with reality.

  • Steve Crickmore

    Defending the indefensible. Whatever the causes of the meltdown- there are loads of them of course (where do you begin?) see Kevin Drum’s partial list, yes, aside from Barney Frank encouraging banks to recklessly open up mortgage lending, guaranteed by Freddie and Fannie, the GOP seems now predictably set against any financial reform. Drum again,

    Democrats are offering up some mild reforms that would modify the playing a field a bit but not really fundamentally change anything. Republicans won’t even go that far. Apparently motivated by industry fealty and a desire to simply oppose anything Democrats offer up, they’re unwilling to support even modest reforms.

  • hcddbz

    hey are going full bore – a Google search using the words “Goldman Sachs” and “SEC” yields among its top sponsored links a BarackObama.com ad promoting the financial reform bill, as noted by the Los Angeles Times. Goldman has also come up with their own search link that sends users using the same two search terms to the company’s response to the SEC’s fraud complaint.

    Now this was done before the SEC released the findings smells of crap to me.

    Giuliani has since said that bringing the charges against the men so quickly and publicly was his biggest mistake as a prosecutor

    ;

    He ruined a number of good people reputations for show. He was wrong.

    BHO might have found a scapegoat, so that he can push his new FRR bill. However this might be a snowball which will lead to other governments pilling on and taking action not just against Goldman but other American Banks which could end up beggaring America.

  • Jim Addison

    Naturally, as with health care, the Leftist deceivers claim if the GOP doesn’t go along with their draconian plan to invest new unchecked arbitrary powers in the federal executive, that we favor “doing nothing.” It is useful to remember in this and other contexts that the words from a leftist’s mouth are not intended to be true or persuasive, but to further their political goals by any means possible.

    Notifying investors that Paulson was shorting the CDOs would not have meant much at the time, since he wasn’t so famous at the time of issue. Besides, the type of instrument people were buying was a “synthetic CDO” and these were constructed to have balance between long and short positions. If nobody was shorting it, nobody would have been able to buy it, either.

    Where Goldman may have gone over the line is in disclosure of the underlying contents. This issue was almost certainly destined to go south; whether or not they provided enough information for investors to make an informed decision is the real problem.

  • hcddbz

    These were complex trades and they were not sold to mom and pop shops. These were institutional investors who ad fiduciary responsibility to manage risk in the over all portfolio and to do research out side of any brief. They are supposed be smart that why they are to have research departments to vet information.

    The victims were enjoying high returns and did not want to look to hard at the returns. Now that the bottoms fallen out they want to cry I was tricked.

  • Verbalpaintball

    Amazing. Defending the same corrupt practices that lead to the decline (all on the Republican watch).

    We on the left find so much humor in your mind-numbing ability to consistently defend the worst side of the argument. What? You think Obama is “untrustworthy” because he didn’t bow down to Goldman’s lobby money? Is that REALLY your position?

    Sad. And the primary reason your voice means nothing in any respectable debate.

    http://www.dailykos.com/story/2010/4/20/859123/-Republicans-now-ANGRY-Obama-DIDNT-cave-to-lobby-money.

  • hcddbz

    Verbalpaintball

    The seeds of this on both watches. CRA FM/FM should have been killed by Republicans. However 2008 the Dems had control of Congress and the Senate. It was Dems who did not want to look at the practices at FM/FM that created the mortgages