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SEC Faces Challenges With Goldman Case - WSJ.com

The SEC's suit against Goldman is the agency's biggest assault on a Wall Street firm in a matter stemming from the credit crisis. A successful outcome for the SEC could go a long way in repairing its reputation, which was damaged by its failure to discover Bernard Madoff's Ponzi scheme and other shortcomings that emerged during the crisis.

The SEC's case against Goldman and a vice president at the firm, Fabrice Tourre, hangs on a single critical contention. The SEC says Goldman sold investors a product linked to the performance of certain mortgages without telling them that a hedge fund betting on the mortgages' demise helped design the product.

Several lawyers not involved in the case said the evidence, as laid out in the SEC's complaint, is deep enough to support the civil fraud charges. "From the complaint, it looks pretty strong," said Jill Fisch, a law professor at the University of Pennsylvania. "It's a test case in terms of the SEC going forward both for whether they're successful and, if they settle, will it be a meaningful penalty," she said.

The SEC has the tricky job of showing that Goldman was reckless in deceiving investors about the hedge fund's role, said Peter Huang, a securities law professor at Temple University. "If you were buying something, you should care about the fact that the person who was picking the things you were buying was actually betting against them," he said. "That's the part that wasn't disclosed.

[Murdoch Alert]

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt št gmail dotcom) on Sun Apr 18th, 2010 at 01:42:11 PM EST
[ Parent ]
The SEC has the tricky job of showing that Goldman was reckless in deceiving investors about the hedge fund's role

No.

The SEC has the tricky job of showing that Goldman deliberately deceived investors about (i) the risk of CDO default; and possibly (ii) GS and Paulson & Co. conspiracy to assemble a crappy CDO for sale. The latter facts "go to" proving through SEC discovery process that GS "CDO managers" (S&P "CDO Manager Focus, pdf) possessed undisclosed, material information about asset performance that benefited GS and Paulson trading positions but harmed CDO buyers.

"If you were buying something, you should care about the fact that the person who was picking the things you were buying was actually betting against them"

No. If you have hired an broker, you should care to whom that agent's fiduciary duty is legally tied. It may not be you, actually, ignorant buyer. It may be the seller.

Huang is an assclown. He and Krugman should get a clown room where they can laugh and laugh and laugh about the "games" quants play all night long after chasing ambulances.

Diversity is the key to economic and political evolution.

by Cat on Mon Apr 19th, 2010 at 10:20:15 AM EST
[ Parent ]
was reckless in deceiving investors

So GS's job was to deceive, but safely?

Goof catch, Cat.

The brainless should not be in banking -- Willem Buiter

by Migeru (migeru at eurotrib dot com) on Tue Apr 20th, 2010 at 01:38:00 AM EST
[ Parent ]

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