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Thread: SEC accuses Goldman Sachs of civil fraud

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    Re: SEC accuses Goldman Sachs of civil fraud

    Quote Originally Posted by Redress View Post
    SEC accuses Goldman Sachs of civil fraud - Yahoo! News

    Goldman of course denies any wrongdoing. So, this goes somewhat over my head, but I find the topic interesting. Does the government have a solid case here? . Does the government have a solid case here?
    It appears that they think they do. I think that they have a moral case but whether or not they can prove the charges or not may be dificult to achieve.

    I also wondered if the Frds actually have a solid case or are the Feds ( admistration ) just attempting to try Goldman Sacks in the media and make it appear to the public that they actuall tries to punish these guys.

    I know that that sounds cynical but WTF better to be cynical than blind.
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    Re: SEC accuses Goldman Sachs of civil fraud

    Oh, I think prosecutors got this case well in hand.

    Excerpted from “Goldman Charges May Spur Finance Reform; Analyst Says Fraud Allegations Against 140-Year-Old Firm Will Add Momentum to Dems' Push for Finance Regs Overhaul,” CBS, April 17, 2010
    The government alleged Goldman misled investors on a particular portfolio of subprime mortgage securities dubbed "Abacus 2007-AC1." Investors were led to believe the portfolio was selected by an objective third party when, in fact, it was influenced by hedge fund manager John Paulson, whose firm, Paulson and Co., was betting the same portfolio would fail.

    "What the government is objecting to is, you can't tell one group of investors 'This is something you ought to buy,' and then tell another group, 'This is something you really ought to sell,'" financial strategist Dick Bove told CBS News.

    Goldman took in $15 million in fees for arranging the transaction, while its investors lost over a billion dollars that became profit at Paulson & Co.
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    Re: SEC accuses Goldman Sachs of civil fraud

    Quote Originally Posted by Chappy View Post
    Oh, I think prosecutors got this case well in hand.
    I hope that they do have a good case and prevail. Wonder what other dirty little secrets are living under the tarps out of the light of day.
    “I do not recall the Viet Cong asking me if I was a natural born or Naturalized American before they shot at me, they just shot at all of us “ f107HyperSabr

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    Re: SEC accuses Goldman Sachs of civil fraud

    Quote Originally Posted by F107HyperSabr View Post
    I hope that they do have a good case and prevail. Wonder what other dirty little secrets are living under the tarps out of the light of day.
    This is not limited to GS, but most of the former investment banks. If this is allowed to go through expect a huge number of civil lawsuits to come forward vs GS, Merril and the other Investment banks.

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    Re: SEC accuses Goldman Sachs of civil fraud

    I don't understand how this is fraud.

    GS didn't disclose that Paulson went short on the positions they organized, but alone is not fraud. As long as the relevant details about the securities were given, how can GS be rightfully accused of fraud?

    As I understand it, and I could be wrong here, you don't have to tell people who's organizing the securities as long as you give them the relevant information about the underlying securities.
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    Re: SEC accuses Goldman Sachs of civil fraud

    Quote Originally Posted by obvious Child View Post
    I don't understand how this is fraud.

    GS didn't disclose that Paulson went short on the positions they organized, but alone is not fraud. As long as the relevant details about the securities were given, how can GS be rightfully accused of fraud?

    As I understand it, and I could be wrong here, you don't have to tell people who's organizing the securities as long as you give them the relevant information about the underlying securities.
    GS was involved with the creation of the RMBS where it knew the advisor in the creation of the RMBS was shorting the RMBS that it advised on the creation of. Meaning the creator of the RMBS had a special interest in ensuring the RMBS was going to fail. It was paid by the party creating the RMBS. GS failed to disclose to the buyer of the RMBS the material nature of the RMBS that it had knowledge of.

    Overall GS did not provide the relevant details regarding the securities that it was selling. GS was in a conflict of interests position. Representing both the seller and the buyer of the security it choose to assist the seller in getting rid of toxic RMBS (that both knew were to be toxic) rather then properly advise the investor of the true risks of the RMBS
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    Re: SEC accuses Goldman Sachs of civil fraud

    Quote Originally Posted by Lord Tammerlain View Post
    GS was involved with the creation of the RMBS where it knew the advisor in the creation of the RMBS was shorting the RMBS that it advised on the creation of. Meaning the creator of the RMBS had a special interest in ensuring the RMBS was going to fail. It was paid by the party creating the RMBS. GS failed to disclose to the buyer of the RMBS the material nature of the RMBS that it had knowledge of.
    But that alone does not constitute fraud. As others pointed out, GS went long on this positions suggesting that it believed contrary to Paulson that the securities were not going to fall in value. Just because the creator of the asset believes the asset will fall in value does not mean you as the seller committed fraud by selling the asset. Remember that the underlying principle is buyer beware. As long as GS did not promise the securities would increase in value (which I'm willing to bet they did not) the lack of disclosure of Paulson's shorting does not seem to equate to fraud. Now, if GS went out and told the public the securities would explode at the same time GS was shorting, that would be another story.

    Overall GS did not provide the relevant details regarding the securities that it was selling. GS was in a conflict of interests position. Representing both the seller and the buyer of the security it choose to assist the seller in getting rid of toxic RMBS (that both knew were to be toxic) rather then properly advise the investor of the true risks of the RMBS
    No question that GS was in a conflict of interest, but it is not their duty to inform people of what the creator thinks will occur. As long as they inform potential buyers of the asset, its makeup, and relevant details about the asset and income stream itself and made no promises about the fluctuations of the asset, I don't see how they committed fraud. GS probably should not have done this, but fraud? I don't see it.

    If I sell you a house in a flood zone that the former owner just took insurance out on similar properties in the area he owns without telling you that the former buyer bought flood insurance, have I committed fraud? No, it's the buyer's job to ascertain what they think will happen to the value of the asset. GS doesn't tell other buyers of mutual funds it is selling what they are thinking and doing about it.

    Did GS put itself in a PR pickle? Absolutely. But I still don't see the fraud.
    Last edited by obvious Child; 04-18-10 at 01:13 AM.
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    Re: SEC accuses Goldman Sachs of civil fraud

    Quote Originally Posted by obvious Child View Post
    But that alone does not constitute fraud. As others pointed out, GS went long on this positions suggesting that it believed contrary to Paulson that the securities were not going to fall in value. Just because the creator of the asset believes the asset will fall in value does not mean you as the seller committed fraud by selling the asset. Remember that the underlying principle is buyer beware. As long as GS did not promise the securities would increase in value (which I'm willing to bet they did not) the lack of disclosure of Paulson's shorting does not seem to equate to fraud. Now, if GS went out and told the public the securities would explode at the same time GS was shorting, that would be another story.



    No question that GS was in a conflict of interest, but it is not their duty to inform people of what the creator thinks will occur. As long as they inform potential buyers of the asset, its makeup, and relevant details about the asset and income stream itself and made no promises about the fluctuations of the asset, I don't see how they committed fraud. GS probably should not have done this, but fraud? I don't see it.

    If I sell you a house in a flood zone that the former buyer just took insurance out on without telling you that the former buyer bought flood insurance on, have I committed fraud? No, it's the buyer's job to ascertain what they think will happen to the value of the asset. GS doesn't tell other buyers of mutual funds it is selling what they are thinking and doing about it.

    Did GS put itself in a PR pickle? Absolutely. But I still don't see the fraud.

    Lets say I owned a house which I had a real estate agent sell to you, I also arranged the real estate agent to get me fire insurance on the house I just sold. So that if the house which I no longer owned burned down I would get paid out. How would you feel if the real estate agent whose services you paid forl did not let you know of the nature of the sale (ie that I would make money if it burned down)

    It is the fact that GS had knowledge that the seller believed the investment would go sour, and did not disclose it to the investor ( which it was paid to assist) that makes it fraud). If GS had no knowledge of the short position on the RMBS it would be free and clear.

    Overall it is the conflict of interest that makes this fraud. GS had material knowledge of the investment, which it did not disclose to the purchase which it was advising. It defrauded the purchaserl If it had no relation to the purchase it would not be in this situation
    Last edited by Lord Tammerlain; 04-18-10 at 01:20 AM.
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    Re: SEC accuses Goldman Sachs of civil fraud

    Quote Originally Posted by Lord Tammerlain View Post
    Lets say I owned a house which I had a real estate agent sell to you, I also arranged the real estate agent to get me fire insurance on the house I just sold. So that if the house which I no longer owned burned down I would get paid out. How would you feel if the real estate agent whose services you paid forl did not let you know of the nature of the sale (ie that I would make money if it burned down)
    Bad, but that's not fraud as the condition of the house. If a big developer has a large amount of properties by the ocean and takes out hurricane insurance despite their being few hurricanes and you are reselling one of the houses, is it fraud if you don't tell the buyer about the developer's hurricane insurance?

    It is the fact that GS had knowledge that the seller believed the investment would go sour, and did not disclose it to the investor ( which it was paid to assist) that makes it fraud).
    That alone does not make it fraud. Again, GS had long positions suggesting it disagreed with Paulson. Not disclosing the options Paulson was engaging in when GS disagreed with them doesn't suggest that this is fraud. Sure they knew, they just didn't agree with it and had their own money on the line. All of the big investment firms have large groups within the individual funds that don't agree with GS. It is GS's duty to inform every potential buyer about what the others are doing?

    If GS had no knowledge of the short position on the RMBS it would be free and clear.
    I don't see how it's fraud. So Paulson bet that the securities were going to go south. That is not the same as Paulson falsifying records to show that the assets were worth much less then they said they were.

    GS's long positions suggest it did not think that the assets were going to devalue. That's very different from the kind of fraud where advisers were pushing stocks that they were recorded earlier stating were total junk.

    Overall it is the conflict of interest that makes this fraud. GS had material knowledge of the investment, which it did not disclose to the purchase which it was advising. It defrauded the purchaserl If it had no relation to the purchase it would not be in this situation
    Do you have a citation to court cases which were based on conflict of interests?
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    Re: SEC accuses Goldman Sachs of civil fraud

    Now I know what Bachmann and the Tea Party activists meant by a "gangster government"... they must have been thinking of the Bush White House. Bush appointed at least three other Goldman Sachs execs, Stephen Friedman (Nat'l Economic Council), Josh Bolten (Chief of Staff), Jeffery Reuben (Chairman of the Commodity Futures Trading Commission), and of course Paulson himself as Treasury Secretary. I think Jon Corzine was in there as well, maybe before Paulson. That's a lot of Goldman Sachs execs.

    What is really galling, if the accusations are proven, Paulson & Co., Inc. definitively knew of the true toxicity of the market for these securities by at most 2005-2006. And not only that, Paulson jumped in the fun by hand-crafting his own super-toxic securities, by picking the mortgages most-likely-to-fail himself, to bundle and pawn off through GoldmanS as AAA-rated bonds while shorting against the junk he had just sold. So not only does he get the fees for the sales, he knowingly rips off his investors betting against them. And then later telling the public of the safety and overall stability of this market as Secretary of Treasury. What a tool.

    I would not be surprised if Paulson's (or some other Goldman exec) inside knowledge of the true weakness of these securities was passed on to friends in the White House in the early to mid 2000's, and from there to other Republicans as well. That may have been the reason for the push in 2003 and 2005 by McCain to limit GSE exposure to such securities. In that perspective, Republican "regulatory" legislation was not so much a sign of good foresight and governance as it was insider complicity to cover their collective butts and come out looking better than they really were.

    Chances are Goldman Sachs will now create and sell securities whose value is backed by an expected lawsuit win, but then bet against it with a CDS.

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