Questions Surrounding the SEC’s Litigation vs Goldman
By Barry Ritholtz - April 17th, 2010, 10:00AM
Reading the SEC complaint (SEC vs GOLDMAN SACHS & CO. and FABRICE TOURRE) makes it hard to avoid the conclusion that there were material misstatements of facts and significant omissions performed in the selling of the Abacus 2007 securitized product.
When you consider the factors surrounding the complaint, it raises a dozens of more questions:
When you consider the factors surrounding the complaint, it raises a dozens of more questions:
A Bakers Dozen: Questions Provoked by the SEC Goldman ComplaintI do not know the answers to these questions yet, but I do have my suspicions. . . .
1. Was this a one off at GS, or are there other CDOs that were sold via Fraud and Misrepresentation?
2. How endemic is this practice on the Street? Did other big derivative underwriters — Merrill, Morgan, Lehman, Deutsche, etc. — engage in similar (alleged) fraudulent practices when they were constructing and marketing these derivatives?
3. Who brought the issue to the SEC’s attention? Was it ACA, who lost 900 million dollars? Or was it other investors in the pool?
4. What does this say about the White House and Wall Street? Are the gloves off? Has the public outcry now reached the point where we might see vigorous prosecution of Wall Street wrongdoing?
5. Paulson & Co. were not named in the litigation. Did they do anything wrong? Might they get drawn into the fight?
6. Are there other hedge funds who engaged in similar behavior: Helping to select the components of a synthetic CDO, which they then shorted? Are there similar disclosure and misrepresentation issues?
7. How does this impact the Financial Reform legislation snaking its way through Congress? Will this add momentum to the call for stronger regulation of the Street? Of Hedge Funds?
8. Will this finally move derivative reform — exchange traded, full transparency/open interest, counter party disclosure, reserve requirements, perhaps even overturning CFMA — forward?
9. What does this mean for the markets? For much of the rally, Financials have been a leading sector. Might this derail the upward momentum?
10. Was the timing of this legal action a coincidence? Did the SEC / WH purposefully release this news to put heat onto those opposing reform?
11. What does this mean for ‘Government Sachs‘? Might GS see their privileged positions within Governments (US and others) curtailed?
12. How much will this end up costing GS? Is it a few million dollars disgorgement of a fee, and a similar penalty, or can this possibly spiral to a billion dollar bottom line hit?
13. Will there be criminal charges against GS or Tourre or anyone else involved?
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