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Message to Wall St. in Goldman case: SEC 'back on the job' | McClatchy

WASHINGTON -- The Securities and Exchange Commission's civil fraud suit against Goldman Sachs that shook Wall Street stands in sharp contrast to the agency's many blunders in failing to stop the $50 billion Ponzi scheme of Bernard Madoff.

The complaint filed against Goldman Friday contained a meticulous narrative of a highly complex deal, but also included the crowing emails of a young Goldman executive who allegedly allowed a hedge fund client to stack the package with risky home mortgages. The hedge fund, Paulson & Co., secretly reaped a $1 billion profit by betting against the deal at the expense of other investors, the suit said.

Even the agency's news release announcing the Goldman suit was infused with "a condemnatory tone that we have not seen coming out of the SEC for almost a decade," since the end of the Clinton administration, said James Cox, a Duke University law professor who specializes in securities.

"The release is very judgmental about the conduct, almost scolding ... and those releases get done at the highest level," he said.

The message: The SEC is back on the job.



The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman
by dvx (dvx.clt ät gmail dotcom) on Sun Apr 18th, 2010 at 11:45:05 AM EST
[ Parent ]
Reputation of SEC's Khuzami is on the line vs. Goldman | McClatchy

WASHINGTON -- In the painful months following Wall Street's flirt with financial ruin, no big player has yet been punished. Robert Khuzami's reputation now rests on Goldman Sachs becoming the first.

The enforcement chief at the Securities and Exchange Commission has spent his first year remaking his office, which was chock full of top managers, but light on investigators.

When Khuzami arrived last year, he inherited a demoralized agency, widely ridiculed as the most ineffectual of federal regulators. Faced with salary restrictions, the agency had promoted top-level people to administrative positions at a pace that left the agency top heavy and without enough cops on the beat.

Khuzami set out to change that, leaving top salaries in place but forcing those administrators out of desk jobs and back into investigations.

His office has prosecuted private equity firms for alleged pay-to-play activity in the state of New York, and late last year brought a high-profile insider trading case against Galleon Management, a large hedge fund that invests on behalf of the ultra wealthy.

But that pales next to what is ahead for the SEC in taking on Wall Street's most influential and politically connected player.



The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman
by dvx (dvx.clt ät gmail dotcom) on Sun Apr 18th, 2010 at 11:46:30 AM EST
[ Parent ]
FT.com / World - Angry Goldman lambasts fraud charges
Documents obtained by the Financial Times throw new light on the rocky relationship between Goldman Sachs and the US Securities and Exchange Commission during the 20-month probe that led to last week's fraud charges against the Wall Street bank.

The frayed mood between the bank and the regulators might explain the SEC's decision to file civil charges against Goldman on Friday without warning the bank, as well as the two sides' lack of settlement talks before last week's move.

In a 40-page document written in September last year in response to the SEC's initial accusations, Goldman and Sullivan & Cromwell, its lawyers, say the authorities' case is riddled with "fatal deficiencies" and criticises the regulators for laying blame with the benefit of "perfect hindsight".
...
"There is no basis in the law, the record or common sense for such charges," it says.

In a separate document, sent to the SEC a few days later, Goldman refers to "open and robust" discussions with staff of the commission - a glimpse of the tough behind-the-scene talks that went on from July last year when the regulators formally informed the bank they wanted to press charges.



"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char
by Melanchthon on Mon Apr 19th, 2010 at 09:07:45 AM EST
[ Parent ]
City trader linked to Goldman Sachs case as regulators track sub-prime deals | Business | The Observer

The Financial Services Authority is closely monitoring developments at Goldman Sachs after one of its London-based traders was implicated by US authorities in a $1bn fraud case that hit Royal Bank of Scotland.

The link gives a domestic dimension to the lawsuit filed by the US Securities and Exchange Commission against Goldman Sachs. The case is the biggest sign yet that regulators on both sides of the Atlantic intend to pursue the architects of the exotic financial instruments that helped to cause the credit crunch. It is alleged that the American bank defrauded investors by encouraging firms to take bets on sub-prime mortgages it knew would turn sour.

The Liberal Democrat Treasury spokesman, Lord Oakeshott, said if the claims proved true it would demonstrate "the extent greedy bankers would go to, to pull the wool over the eyes of their customers and the regulator".

The accusations are levelled at Goldman Sachs, as well as French employee Fabrice Tourre, 31, who is now an executive director in its London office.

The US financial watchdog obtained emails sent to a friend in which Tourre jokes: "The whole building is about to collapse... only potential survivor, the fabulous Fab [Fabrice Tourre]... standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!"



The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman
by dvx (dvx.clt ät gmail dotcom) on Sun Apr 18th, 2010 at 11:55:12 AM EST
[ Parent ]
This RBS?

Royal Bank of Scotland (RBS.L) was forced to reveal yesterday that it has lent $3.47bn (£2.34bn) to Lyondell Chemical, the bankrupt US chemicals company. Analysts warned that RBS, the biggest lender to Lyondell, was at risk of losing a sizeable proportion of the money.

RBS inherited the loans from its ill-fated acquisition in 2007 of ABN Amro's investment bank. The loans are thought to include $1.6bn worth of lower-ranked credit that could lose all of its value. ABN Amro is listed as Lyondell's biggest secured creditor in documents filed in the US bankruptcy court in New York.

The potential loss is the latest banana skin for RBS linked to the £10bn ABN Amro deal. RBS's pursuit of the Dutch bank during the financial meltdown helped to seal the fate of Sir Fred Goodwin, who quit as chief executive late last year. Last month, RBS revealed it could lose £400m from Bernard Madoff's alleged $50bn fraud in the US because of deals done by ABN.

Read more...

GS victim. Really?

Diversity is the key to economic and political evolution.

by Cat on Mon Apr 19th, 2010 at 10:39:24 AM EST
[ Parent ]
Must be the other RBS.

"Of course I feel let down by RBS," Mr Hamilton said, before adding: "Is there a person in the whole of Scotland who doesn't feel let down by RBS? We have trusted them for generations. I've been a customer, I'm sure, for 60 years."

There was at least one call on Mr Hamilton's website yesterday for a "class action" against RBS with other aggrieved customers joining him in a major action against the bank. Politicians admitted Mr Hamilton's claim could have "enormous implications", and may pave the way for "a speedy nationalisation".

SNP MSP Alex Neil said: "I think the bank will be nationalised anyway, but Ian is making a substantial and justified point that there are responsibilities the banks have to accept in terms of their actions and in terms of their customers."

Read more...



Diversity is the key to economic and political evolution.
by Cat on Mon Apr 19th, 2010 at 10:44:17 AM EST
[ Parent ]
Victim, the press reports, victim really?

"Cherie Blair, the wife of former British Prime Minsiter Tony Blair, has been hired to sue the Royal Bank of Scotland. Two UK pension funds have asked the US courts to compensate them for the losses they incurred when the bank 'falsely reassured' investors the bank was in good health when it was 'effectively insolvent'." scrapbook

"Neil Moorhouse, a spokesman for RBS, said he was "unaware of the case" and couldn't provide further comment. "Bloomberg


Diversity is the key to economic and political evolution.

by Cat on Mon Apr 19th, 2010 at 11:04:32 AM EST
[ Parent ]
I can't really say I feel bad for the shareholders, especially not big ones like these pension funds. Big owners usually have their own people as members of the board to keep an eye on things, and even if they don't someone should have told them that share ownership carries with it the risk of losses. Past performance is no guarantee of future performance. If you buy shares in a company run by crooks, well, tough luck. Take a closer look at management next time.

Ergo, they just seem like sore losers.

If anyone should be going to court, it's the management for RBS for providing false information to the markets. Long jail terms for them is fine by me, but stupid shareholders should not be compensated. If they don't like risk they should put their money in German sovereign debt.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Mon Apr 19th, 2010 at 11:48:51 AM EST
[ Parent ]
There are stupid shareholders and there are stupid shareholders. Over the past 2 years I've read of some pretty awful crimes perpetrated by fiduciaries e.g. real estate agents, and other money managers, engaged by clubs, pension funds, municipalities. Some have been convicted --mostly the ponzis-- but I guess, stupid shareholders are given to understand the test of harms through civil litigation is more easily satisfied than those proscribed by criminal prosecution.

Which is a pity. Civil penalty cannot stop such people. Limited liability such as it is, the entity that harbors the gumbas may bankrupt. But they prevail, hang a new, teflon shingle burnished with self-evident chutzpah, and draw the other "outguessing" shareholders that got away.

I'm not convinced as yet any prime dealer employee will ever face prison, although in the US, states' attorneys general may arrest and charge individuals at any time. DoJ doesn't require SEC permission to prosecute.

Diversity is the key to economic and political evolution.

by Cat on Mon Apr 19th, 2010 at 04:12:40 PM EST
[ Parent ]
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 ät 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 ]
FT.com / US / Economy & Fed - US Treasury chief hardens stance on derivatives
Tim Geithner, US Treasury secretary, stiffened his call for derivatives reform on Sunday as lawmakers and officials used allegations that Goldman Sachs committed fraud in marketing complicated financial instruments to push for more transparency.
...
Separately, in a letter to Jean-Claude-Trichet, president of the European Central Bank, Mr Geithner called for co-operation between the US and Europe in deciding which contracts should be forced through central clearing houses and on to electronic exchanges.

The letter, seen by the Financial Times, was sent on Friday and describes a regulatory reform tougher than some Democratic and Republican proposals: "All standard derivative contracts must be traded transparently" on exchanges or other platforms, Mr Geithner wrote, "lowering costs for users of derivatives, such as industrial or agriculture companies".



"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char
by Melanchthon on Mon Apr 19th, 2010 at 02:55:05 AM EST
[ Parent ]
Melanchthon:
Tim Geithner, US Treasury secretary, stiffened his call for derivatives reform on Sunday as lawmakers and officials used allegations that Goldman Sachs committed fraud in marketing complicated financial instruments to push for more transparency.



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

by dvx (dvx.clt ät gmail dotcom) on Mon Apr 19th, 2010 at 03:49:22 AM EST
[ Parent ]
Oh man, that made me chuckle.

keep to the Fen Causeway
by Helen (lareinagal at yahoo dot co dot uk) on Mon Apr 19th, 2010 at 01:06:03 PM EST
[ Parent ]

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