SEC started investigating Abacus in 2008

[Cees Binkhorst]

REPLY TO: D66 at nic.surfnet.nl

Die brief  van Goldman Sachs aan de SEC zal waarschijnlijk in de
rechtzaak naar voren komen, en daarna hebben ze iets te verdedigen
tegenover aandeelhouders die niet voldoende geinformeerd werden.
Aandeelhouders zijn makkelijk volkje in de USA ;)

Groet / Cees

SEC started investigating Abacus in 2008
http://blogs.reuters.com/felix-salmon/2010/04/19/sec-started-investigating-abacus-in-2008/
Apr 18, 2010 22:19 EDT
banking

Talk about Goldman not disclosing material information. I’m not talking
about Abacus here, I’m talking about the fact that Goldman knew as far
back as last September that the SEC was on the warpath with respect to
Abacus, and gave no hint to shareholders that there might be legal
trouble afoot.

The WSJ has got its hands on — but, unforgivably, has not posted online
— a letter that Goldman Sachs sent to the SEC in September, claiming
that the Paulson’s involvement in Abacus was not material. (This,
incidentally, should help keep quiet anybody who credits the press in
general or the NYT in particular with being central to this story: the
SEC was clearly on the case long before the press was.) In fact, the SEC
probe dates back all the way to August 2008:

     Goldman said it first heard from the SEC about the investigation in
August 2008, when it received a subpoena requesting documents related to
the transaction…

     In July 2009, Goldman and Mr. Tourre received so-called Wells
notices from the SEC. Such notices are a formal warning that regulators
intend to file civil charges.

The letter clearly wasn’t very convincing, and Goldman surely knew it.

     Goldman argued that the facts about Paulson weren’t material. In
the response, reviewed by The Wall Street Journal, Goldman asserted that
hedge-fund manager John Paulson, today a famed figure on Wall Street,
was nearly unknown when the securities were sold in early 2007, and
participants were unlikely to have cared about his role.

This is just silly. Paulson’s involvement was material not because who
he is, but because a person with enormous control over the contents of
the CDO was exerting that control with the express intention of making
them as toxic and failure-prone as possible. Goldman isn’t stupid, so
they surely understood what the SEC was driving at, and also understood
that their response was weak.

It’s the job of Goldman’s lawyers, of course, to fight these SEC charges
aggressively. But when they got the Wells notice in July, they surely
realized that there was a significant chance charges would arrive at
some point. And so they had a duty to reveal that fact to shareholders.

Add this to the lawsuits likely facing Goldman, then: suits from
shareholders who suffered a massive loss on their holdings Friday, and
who will claim, reasonably enough, that Goldman should have told them
about the Wells notice and its discussions with the SEC.

On the other hand, Goldman might have assumed that all SEC lawyers were
utterly toothless, at least if the one dug up by the WSJ is any indication:

     “This isn’t mom and pop getting taken advantage of,” said Peter
Henning, a professor at Wayne State University Law School and a former
SEC enforcement lawyer. These clients “might not have known about
Paulson, but they had to have known that these securities were extremely
risky.”

Yeah, this is the kind of person that the SEC hired as an enforcement
lawyer: someone who seems to think that a small state bank in Germany
“had to have known” that the CDO was extremely risky, even when it
carried a triple-A credit rating. In fact, given the modest yield
pick-up that the tranches offered, I think it’s pretty obvious that the
investors can’t have known that the securities were extremely risky. If
they had, then they wouldn’t have bought them.

In any case, the more we learn about this case, the worse it looks for
Goldman. Even if they go to trial and win, they surely face multiple
lawsuits. If they settle, they’ll get more. And if they go to trial and
lose, then that could be extremely harmful indeed to their franchise.


Comments
3 comments so far | Comments RSS
Apr 19, 2010
8:48 am EDT

“Yeah, this is the kind of person that the SEC hired as an enforcement
lawyer: someone who seems to think that a small state bank in Germany
“had to have known” that the CDO was extremely risky, even when it
carried a triple-A credit rating”

Why are you so anxious to clear a multi-billion dollar “small state
bank” of culpability in an investment that makes a Nigerian bank email
scam look solid? The German government has not agreed and is trying the
ex-ceo for failure of fiduciary duty, by the way. The flipchart says
quite plainly that GS was taking the protection side and would walk off
with the deposits if anything went wrong. Why should a multi-billion
dollar bank have the right to assume that GS or whoever GS sold that
side to was just giving up premiums for fun? I’m pretty sure that IKB
thought they were taking advantage of a naive investor on the other side.
Posted by rootless | Report as abusive

Apr 19, 2010
9:50 am EDT

The Obama administration is running with these charges now to do exactly
what Barney Frank says, “make financial reform bill pass more easily.”
What a group of political hacks and the rabid Obama supporters,
including the NYTimes, obeyingly support. What has happened to this
country….we’re ruled by Chicago politics, not rule of law. Everything
this administration does is for political gain or political CYA….Obama
doesn’t want the other side saying he is beholden to Goldman because of
a $billion in campaign funds….but he is beholden and you’ll see very
little happening to Goldman. Interesting these charges began during the
Bush administration….at a time when Obama was still getting millions
from Goldman….if they didn’t expect something in return from the Obama
team, they really are a defective investment firm.
Posted by lezah2 | Report as abusive

Apr 19, 2010
10:50 am EDT

Lezah,

Think this through. You’re claiming that Obama is bought and paid for by
Goldman AND that he’s using this to push through financial reform bills
that Goldman staunchly opposes.

You’re certain this is motivated by politics, but you don’t have any
evidence other than it came out at a time that would be advantageous for
the President. You admit that the probe was started under the Bush
Administration. Its also taken about the amount of time one would
normally expect for a complex white collar claim. Shouldn’t we wait
until there’s some beef before we start throwing around big claims like
we aren’t under the Rule of Law anymore?

And what exactly do you mean by that, anyway? Changing the timing of an
indictment may be dishonorable because its using the government for
political gain, but it only changes the timing – its not a breach of the
rule of law. County prosecutors all around the nation set up their big
cases right before election time if at all possible, and have done this
for centuries. Were we never under the rule of law?

The only breach of the rule of law you mention is your prediction that
they’ll get a slap on the wrist . . . which hasn’t happened yet.

Your facts aren’t quite right either. Obama didn’t get “millions” from
Goldman – he didn’t even get a million, although he came very close. Out
of a total haul of about $750M. Even if he is being entirely cynical,
cracking down hard on Wall Street banks will do him more good than a
million in ads will, especially with how flush with cash he’s likely to be.

I’m also not sure I understand why its significant to you that the
charges were first considered by the Bush administration, unless you
mean simply that Bush was less tained because he was a lame duck.

Goldman was Bush’s number 5 donor, gave Bush almost the same percentage
of his overall haul as it gave Obama (.0011 to .0013) and overall, Bush
was much more in debt to the financial industry.

Bush’s top 12 donors were 9 Wall Street banks and 3 accounting firms.
Obama’s top 12 donors include 4 Wall Street banks, 3 Universities, 2
movie companies, 2 tech companies and the law firm his wife worked at.

For comparison, Goldman was McCain’s #4. The top 5 were all Wall Street,
and the remainder of the 12 were 3 more Wall Street firms, an accounting
firm, AT&T, government employees and Army employees.

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