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SEC accuses Goldman Sachs of civil fraud

obvious Child said:
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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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
 
Lord Tammerlain said:
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.
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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
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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.
 
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obvious Child said:
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.
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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
 
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Lord Tammerlain said:
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)
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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).
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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.
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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
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Do you have a citation to court cases which were based on conflict of interests?
 
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.
 
Right now, it is too soon to say whether Goldman actually committed fraud. The charges are allegations. They need to be proved.

IMO, the key issues turn on the design of the CDO in question and disclosure related to that CDO. If all of the instruments included in the CDO were a subset of a larger group selected by Mr. Paulson, then that is a material element that would need to be disclosed to prospective investors. If there was a material omission, was it deliberate? Only when those facts are available will the allegation be demonstrated or rebutted.
 
Redress said:
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?
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Can a lawyer tell us why it's not criminal fraud (and what is the difference between criminal/civil fraud?


I'm guessing intent and reckless/deliberate deception are part of it.
 
SEC files lawsuit against Glodman Sachs for Fraud

SEC files lawsuit against Goldman Sachs for financial fraud

Its about time, I was wondering when they would get around to it. This need to happen to discourage bad behavior, and I think they should start filling fraud against each bailout companies myself.
 
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Re: SEC files lawsuit against Glodman Sachs for Fraud

If guilty, the culprits should have the book thrown at them.
 
hazlnut said:
Thank you for your totally uniformed, irrelevant opinion. Go back to watching Glen Beck...
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LOL. Explain why your beloved party is knee-deep in both Fannie and Freddie, and nary an ounce of investigation goes their way?

I'm not a follower of Glen Beck, but you're his bitch. LOL
 
I'm not sure which way the actual case will go. But it's not as cut and dry as "Goldman Sachs is an evil corporation."

a) Even after their fee, Goldman Sachs lost tens of millions in this transaction when the sub-prime market crashed. It doesn't appear the structured this transaction so they'd win in that event.

b) They didn't take advantage of poor little mom and pop investors. IKB and ACA are large investment groups and an explanation of the risks was provided to them. These groups knew what they were getting in to, and like almost all of the street, thought the return was great enough to justify the risk.

c) One of the investors, ACA, selected the portfolio to include the CDOs. ACA controls a lot of money. They should know what they are doing.

Now granted, most of this info came from Goldman Sach's press release. It will be interesting to see the outcome of the trial.
 
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Isn't this odd how this case comes out now while Obama is trying to gain a firmer grip on Wall Street through the new regulation reform he's performing?

This ain't a coincidence, folks.

And since he took almost $1 million, in campaign conributions from Goldman, I suspect Goldman could be playing the willing participant role to help get that regulation passed. Goldman, like Lehman, is full of liberal contributors.
 
Erod said:
Isn't this odd how this case comes out now while Obama is trying to gain a firmer grip on Wall Street through the new regulation reform he's performing?

This ain't a coincidence, folks.

And since he took almost $1 million, in campaign conributions from Goldman, I suspect Goldman could be playing the willing participant role to help get that regulation passed. Goldman, like Lehman, is full of liberal contributors.
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That's right. Goldman Sachs is a major player in a conspiracy designed to send their own stock prices tumbling.

By the by, Goldman Sachs donates to Republicans too. It's called hedging. :lol:
 
I remember reading - I guess it was Christmas 2008 - that GS bonuses would be $68 billion for everybody to split. That's mind boggling.
 
Kelzie said:
That's right. Goldman Sachs is a major player in a conspiracy designed to send their own stock prices tumbling.
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When you pay out the billions in bonuses ahead of time, it's okay to sacrifice Goldman stock for the team.
 
Erod said:
When you pay out the billions in bonuses ahead of time, it's okay to sacrifice Goldman stock for the team.
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Let me see if I get your conspiracy theory right. Goldman Sachs donate $1 million to Obama, somehow putting them in his pocket (wouldn't it be the other way around?). So to give an example about why reform is needed, the SEC (who must also be in Obama's pocket...can governmental agencies donate to Obama?), charges Goldman Sachs with fraud, driving the total value of GS stock down tens of billions of dollars...all while GS is supposedly still in cahoots.

Ignoring of course the fact that GS has also donated hundreds of thousands of dollars to the GOP...

How does this make sense to you?
 
Kelzie said:
That's right. Goldman Sachs is a major player in a conspiracy designed to send their own stock prices tumbling.

By the by, Goldman Sachs donates to Republicans too. It's called hedging. :lol:
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Then its the most one sided hedging in history :roll:

Goldman Sachs bankers are also the number one contributors to the Barack Obama presidential campaign, giving $691,930 to his campaign in this cycle, according to the records. John McCain's campaign has received substantially less from Goldman Sachs employees, $208,395, although they are, as a group, his fourth largest contributor....

72 per cent of Goldman's money this year has gone to Democratic candidates and the national party, the majority party in Congress.

Congress Has 43,457,362 Reasons to Help Goldman Sachs - ABC News
 
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texmaster said:
Then its the most one sided hedging in history :roll:

Goldman Sachs bankers are also the number one contributors to the Barack Obama presidential campaign, giving $691,930 to his campaign in this cycle, according to the records. John McCain's campaign has received substantially less from Goldman Sachs employees, $208,395, although they are, as a group, his fourth largest contributor.

Congress Has 43,457,362 Reasons to Help Goldman Sachs - ABC News
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Damn it, I left the link up all day yesterday in case someone wanted to say otherwise. Of course I can't find it now.

You are aware that you don't have to be completely covered to be hedging aren't you? And I wouldn't call several hundred thousand dollars one sided.
 
Redress said:
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?
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appears folks are exploiting insider information to enrich themselves:
goldmansacsputs.gif

anyone with an extra thousand bucks and some insider information on friday morning could have made just shy of a million and a half by friday afternoon
there was a surprisingly large volume in these "out of the money" puts the days before... who in their right mind would bet on such a large fall for such a typically stable company? someone who knew what was coming. maybe someone in the SEC should look into that, too
the mechanics are quite simple. someone likely from the inside of either the SEC, the Obama administration or possibly (probably?) even goldman sacs (assuming they knew the charges were coming ahead of time) went ahead and purchased a bunch of out of the money put options on goldman a few days before they were set to expire. those puts were nearly worthless until the announcement against goldman was made
in this case, they were the april 170 puts. before the SEC announcement on friday, GS stock was trading around 180, which would mean that those 170 puts were about to expire completely worthless that day. they were probably trading for pennies that morning before the announcement, since the stock was trading over $10 a share above the put strike price and therefore those puts had no intrinsic value. after the SEC announcement, GS plummeted to 156, which instantly made those 170 puts worth $14 per contract in value
so, it would appear that someone with insider foreknowledge of the SEC announcement purchased these options that everyone else thought would expire without value. they ended up making a 140,000% gain in one day. nice profit if you can find it ... except it is illegal
time to investigate; let's see if an inquiry is undertaken - and pursued
 
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