Goldman Sachs in deep
On Friday, the U.S. Securities and Exchange Commission charged Goldman Sachs with fraud which rocked the financial world.
Goldman was charged for failing to disclose to buyers of a collateralized debt obligation, known as ABACUS. Hedge fund manager John Paulson helped investors choose mortgage derivatives that he himself was betting against for the deal, setting investors up to fail.
This current SEC probe could spread to other companies and widen, making this charge just a possible tip of the iceberg.
Goldman already hurting
According to Reuters, Goldman has denied wrongdoing yet fighting charges carries a big risk not only for the company but for the CEO and could damage the bank by losing current and future clients. Goldman shares already sank 13% on Friday after the announcement of the charges.
Company reputation tracker, Vanno notes that the SEC probe is no surprise. Nick DiGiacomo, Co-Founder of Vanno said, “What’s of particular interest for Goldman Sachs is the high level of employee satisfaction and low levels of social responsibility (and customer satisfaction). It does seem that trends in different aspects of company reputation – in this case happy employees combined with a track record of social irresponsibility – can be viewed as a leading indicator of a company at risk.”
More lawsuits coming?
In America alone, the case could “buoy public drive for reform,” says Reuters. Well-known plaintiffs lawyer, Jake Zamansky told Reuters, “I’ve been contacted by Goldman customers to bring lawsuits to recover their losses. It’s going to go way beyond ABACUS. Regulators and plaintiffs’ lawyers are going to be looking at other deals, to what kind of conflicts Goldman has.”
Other countries are taking action
It’s not just individuals considering taking action against Goldman, Bloomberg reports that Germany may take legal action against Goldman. German government spokesman Ulrich Wilhelm said that Germany’s Bafin financial regulator will ask the SEC to share information they’ve gathered for the Goldman case.
In light of Goldman’s plan to pay $5.4 billion in bonuses just for the first quarter of 2010, according to the Huffington Post, Gordon Brown, Prime Minister of the UK was not shy about his anger with Goldman. “I am shocked at this moral bankruptcy,” he said on BBC TV. “This is probably one of the worst cases that we have seen.”
The UK is considering action against Goldman. Brown called for a “new global constitution for the banking system” that would, among other things, ban bonus packages like the ones planned by Goldman Sachs.
Dragging Schumer into it
Political bloggers have been pointing to the SEC charges with conspiracy colored glasses while others are only going so far as pointing out the close relationship between hedge fund manager John Paulson and New York Senator Chuck Schumer. Republican blogger, Doug Ross said, “You may also recall that the top three recipients of Fannie Mae’s campaign contributions — before it collapsed and precipitated the mortgage meltdown — were all Democrats: Chris Dodd (D-CT), Barack Obama (D-IL) and John Kerry (D-MA).”
It’s gonna get ugly
The SEC charges are just the beginning for Goldman, it appears. Germany, the UK, private American investors and the like are looking to take action against the firm, especially given the continued lack of morality as they prepare to spend billions in Q1 bonuses and the blogs are just now lighting up with links between Goldman and Senators. If more countries take action and the SEC continues to probe the industry, this is just the beginning and it’s going to get ugly.
Justin Boland
April 20, 2010 at 11:10 am
…really? The SEC has never had teeth before, and Goldman’s people are more entrenched at the executive level of our government than ever before. The maximum fines involved here are barely a blip on Goldman’s radar — their own lawyers will wind up being their biggest expense. I definitely see this as political theater, just like any other hearing going on Capitol Hill right now.
What I’d REALLY like to see is the SEC, or better yet, the FBI, going after the ratings agencies who committed fraud for, what…over a decade? They were giving Triple A ratings to bonds they didn’t even understand. They didn’t even have data on what most of the bonds were even composed of! Without the well paid work of Moodys, Fitch and S & P, the big institutional investors never would have been stampeding into MBS/ABS in the first place.
Benn Rosales
April 20, 2010 at 11:21 am
The SEC never had such a huge scapegoat in the past to drive Presidential Wallstreet reform before. Behind that are the list of countries looking for a scapegoat as well, not to mention the individuals harmed in this scheme (alleged). Yeah, it’s about to get nasty, Enron was childs play.
Justin Boland
April 20, 2010 at 12:16 pm
To preface, I really love AG and dig what you guys do here, so it’s a very respectful disagreement I have here. It’s also a total disagreement.
You say the SEC never had such a huge scapegoat…The SEC had Enron, didn’t they? What did the aftermath of the Enron catastrophe fix? An accounting firm went down but their practices became an industry standard. The SEC had Drexel Burnham and Milken and Boesky before that, they had Silverado and Neil Bush before that, but through it all, the trend has been 1) increasing de-regulation and 2) increasing overlap with the industry they are supposed to regulate.
I think the recent SEC ruling about “Tagging” high frequency traders is a perfect example of their regulatory MO. It makes for a great headline until you look at the actual provisions and see it’s a toothless and redundant regulation that will have no effect on discouraging or preventing or even just identifying corporate crime. I’m betting this whole thing blows over quietly and profitably after the elections, but….
…I sure hope I’m wrong. I would like to see you proven right.
Benn Rosales
April 20, 2010 at 12:26 pm
Justin, I don’t think we’re disagreeing here, and I would never in a million years compare enron to what sachs is accused of- essentially the collapse of the GLOBAL economy. What this article is about is the world versus sachs. SEC was the first to move, but it won’t have the last word unless the U.S. courts step in which is not outside the realm of possibilities.
Enron was not politically motivated by a presidential agenda therefore I think you see a lot of pressure on the SEC to make an example of Sachs. The president will be in New York this week and it will be interesting to hear the rhetoric used to promote change on wallstreet.
Dunes
April 20, 2010 at 1:20 pm
An interesting discussion on the topic IMO which discusses the impact beyond just the potential “Civil” charges (They are Civil not Criminal)…
https://www.hulu.com/watch/143411/charlie-rose-sec-accusation-of-goldman-sachs-the-girl-with-the-dragon-tattoo
A cynical populace in an Economy and Housing Market that has negatively affected millions of families, a President elected on an emotional “Change” platform, for two years constant talk of ” we are at the bottom…rescission over…yadda yadda”
yet people don’t see it/feel it…
This is the perfect environment for aggressive people in the SEC, DOJ, FBI, IRS and other entities to pursue issues that may not have been possible to pursue for whatever reason in the past..All have created new Task Forces to investigate many issues ranging from Goldman to Real estate transactions and the mood of the public IMHO is just right for some major changes/prosecutions to be attempted or made.
Anything to do with Banking, the housing market, RE transactions, loan mods is going to be looked at by many IMO and many should be concerned…I think it’s fair to say most people are in favor of change and I say that not to suggest they know what to change or how ect. just that any change would be seen as better than leaving things as they are.
Think of the image of the RE industry in the minds of many in the public…I expect to see other areas and issues being pursued by the Gov. through various entities (DOJ ect.) this year..Things/events/issues are discussed here and I believe the Gov. entities are discussing them also…Good atmosphere for Aggressive Investigators/prosecutors to work in…. https://www.justice.gov/atr/public/press_releases/2010/257801.htm
and remember the DOJ makes no secret of it’s interests…
https://www.justice.gov/atr/public/real_estate/index.htm
Just as the SEC has it’s interests in mind and it’s eager investigators/prosecutors in an time when they also have public support to pursue these investigations/prosecutions/cases so do the DOJ, IRS, FBI ect. (FBI and IRS both have new Task Forces to investigate RE transactions and practices)
The Gov. eagerness and willingness to pursue and push the SEC claims might possibly be a flag warning others that their ways of doing business and the practices they use or allow may soon follow.
While the argument can be be made (and rightly so) that previous examples (Enron) resulted in little change, this is not then or quite the same scenario….In 2010 is it a safe bet to assume that nothing will be done this time either by the SEC or all of the other Gov. entities investigating anything to do with Banking or Housing?
Dunes