Goldman Sachs indicted for fraud

Caveat Emptor, am I right?

Not Goldman Sachs' fault that they're smarter than the consumers.

What? You mean that deliberately setting up products so they can fail and then profiting by betting on their failure is somehow improper?

Damn, and I posted it in the hedge fund thread. What they did was a drop in the bucket to what Magnatar did, though.

Selling products to customers that you suspect will fail and then "hedging"/profiting from betting against those products seems to be par for the course for this industry. Good luck proving fraud, though. It's almost impossible to prove that Goldman Sachs "knew" what was going to happen.

Oh, this will be making waves at my office, that's for sure.

I can't imagine that the SEC would move in on this without some evidence that would prove fraud. From what I understand, when the Feds move in, you're pretty much fucked.

ETA: What I mean by that is the career lawyers at the federal level don't move forward on anything until it's an open and shut case.

I don't normally practice in the SEC/financial realm, but as a civil litigator I can assure you that it is often easier to prove someone guilty of killing someone than of committing fraud Here's an example of fraud, you have to know that X is false, then tell someone X is true. Essentially you have to prove that someone has knowledge of something. That's really tough to do. And when "X" is a future event, like the implosion of the housing market, it's really, really tough.

Maybe the case is really about failing to disclose adverse interests, or a breach of fiduciary duty, or something easier to prove than straight fraud. I can't tell from the article. To prove the "classic" case of fraud, you basically need someone to admit to it either in a written or oral communication, as proving it from circumstantial evidence is extraordinarily difficult.

You don't go hunting elephants with a BB gun. I'm betting SEC got their hands on a whistleblower or a bunch of leaked emails and memos at least.

I understand. I worked on a perjury claim years ago when I was interning at the AGs. I was just saying that the feds wouldn't make a move on such a big target unless they had the evidence they knew would win the case.

Ugh. Perjury is even harder to prove.

I know. That's why I didn't roll with it and why Patrick Fitzgerald is a stud for getting it on Scooter Libby.

Basically, Goldman got another company to select assets for a CDO, and said company worked with a hedge fund to determine the contents of the CDO. Once completed, Goldman sold slices of the CDO, and when disclosing who created the CDO, they only ever mentioned the company, rather than the company and the hedge fund it worked with.

This all seems to boil down to Goldman failing to disclose the hedge fund's involvement in the creation of the CDO to investors, and the hedge fund's intentions to the company it helped create them with.

So I'm assuming the SEC has to prove that Goldman knew the hedge fund intended to bet against the CDO it was helping to create, and knew that prior to its creation. What makes me curious, though, is why would that even matter? What if this hypothetical hedge fund intended to bet against a particularly strong CDO it miss-evaluated? Surely someone here is a total expert in financial disclosure regulations!

The crazy thing to me is that hedge fund can bet against other CDOs that they don't own. From what little I know, I thought the "bet against" was essentially insurance rather than how somebody would short a stock. If that's the case, it's not remotely insurance at all and should probably have regulations attached that you CAN'T bet against your own holdings. There's a reason that Major League Baseball doesn't allow managers to bet on baseball games, and betting against hedge funds which you are mismanaging (and then hiding behind the fact that it's nigh impossible to prove you purposely mismanaged it) is a huge issue.

You're more than able to bet against a security you don't own. And while I understand the notion that you shouldnt be allowed bet against your own personal holdings (or holdings within a fund) as it can possibly be a conflict of interest, you have to realize that these derivatives are primarily used as "insurance."

Seems like the only fair regulation to combat that particular problem would be to limit the amount of "protection" your purchase on your actual holdings so that the potential profits of the protection dont exceed the potential profit of the holding youre looking to protect...but then you run into the fact that potential gains when youre long a holding are theoretically unlimited.

So yeah, it looks like were stuck with them. Despite all the grandstanding, derivatives are here to stay. The best we could hope for would be an exchange created for them so that the value of the market would be easier to calculate and instances of fraud would be easier to identify.

Of course. I mean, there's no way you could know for sure that the house would burn down, right? What if the firefighters got there in time? What if the fire didn't spread as expected? You'd be out a shitload of cash, is what. You're a risk-taker!.

I don't know if you are doing it intentionally, but this EXACTLY the situation that arose through Europe a few hundred years ago. It led to massive changes in the legal systems. In England, for example, ships were commonly lost during long trading voyages. Folks would routinely take out policies on ships depending on their trade routes, hoping they'd sink. It was basically a popular form of gambling. It became such an epidemic laws were enacted requiring you to have a stake or a significant relationship to the entity/person you are insuring, or the insurance policy could not be legally issued nor enforced. This is because allowing a person to bet for something they don't care about to fail is a TERRIBLE TERRIBLE FUCKING IDEA! It creates dangerous disincentives that are counterproductive to the common good. We don't want people rooting for ships to sink, or houses to burn down, or for a real estate market to tank.

In the modern era, believe it or not, we still see it. In the economic market, companies take bets/hedges against interests they have no stake in all the time. It's possible your employer has taken out an insurance policy on your life. And you may be surprised just how large the policy is for.

We need more regulation. Do legislators not have history books? In the long run, we do not want people rooting for collapses and failures.

FYI. As much as I hate their guts, Goldman wasn't indicted. This is a civil suit, not a criminal one.

The SEC is going to have a tough time proving that Goldman did anything wrong under current securities law. Everyone was doing this. The problem is that the SEC needs to man up and regulate, not sue after the fact on some bullshit 10b-5 theory.

OMG!!!11!!! u fukin SOCIALIST!!!! Tea tea tea tea! Overlord's a STEALTH muslim hippy socialitst just like his kenyan messiah!!

Wow hope Goldman gets nailed. Whats next Ron Paul's audit the federal reserve act passes the senate next?

It’s interesting to see Goldman be singled out, rather than, say, a hedge fund like Magnetar Capital.

It appears that both the British and the German equivalent of the SEC are making moves on Goldman Sachs. They have no chance of getting off with a slap on the wrist now.

Well, the SEC appears to be going after other banks, but still, it does seem odd that the banks that lost money on these deals are going to take the hit, while the hedge funds that profited from manufacturing these lemons solely to bet against them are getting off scott free.

It's like going after an embezzler's accountant.

Even though it has NOTHING to do with what you're talking about, this story gave me a flashback of The Peerless case from 1L Contracts.

Just adding the awesome reporting from TAL and ProPublica that aired last weekend on NPR. Listen here!

Testimony could undercut SEC charges against Goldman.

See what I mean? The people buying these funds were big, sophisticated, institutional investors (all of whom were doing the exact same thing in many cases). They knew what they were getting into. Pension funds weren't destroyed, at least directly, because of this particular deal.

The SEC is wasting its (and our) time. This particular transaction isn't even close to the egregious investment strategies that got us into this mess.

http://www.reuters.com/article/idUSN...pe=marketsNews

Issa is quickly becoming quite the watchdog. Hopefully these kids can work it all out and get back to the task at hand of lining their pockets from special interests.

We need financial regulatory from Congress, not some BS punt job to the SEC to create regulations and enforce. We need law, on the books, that strictly regulates swaps, derivatives, and other exotic products. I particularly like the reform bill sponsored by the agriculture committee in the Senate that forces total transparency in the derivative market.

Unfortunately, a lot of what Goldman did was above-board. Whether or not what GS did was unethical, I have a hard time seeing how it was illegal - especially if the counterparties knew that Paulson was hedging against the risk of default of the mortgages packaged into the CDOs in question.

The Republicans are full of shit. They're stonewalling reform.

I hear this a lot, but after the Barry Bonds perjury case, and now this, I'm beginning to wonder if these federal prosecutors get a bit too distracted by the limelight at times.

I was referring to how weak their case seems to be after that article, not whether or not their target deserves it. There's a general presumption that if federal prosecutors are involved, their case must be incredibly strong (and that's not a faulty assumption, given their conviction rates), but recently? The most high profile cases I've seen them involved with don't appear to be anywhere near as clear cut as their reputation would imply.

I am often accused of being a leftist goon.