I'm confused - is there a case in GS-SEC or not?

The Goldman-SEC fraud case announced on Friday had dominated headlines along with the Icelandic Volcanic eruption.  The global consequences of both events have been marked - and more so with the volcano.  Estimations of $200M or more per day in costs.  Workers in Kenya losing their jobs, and 5M roses going bad undelivered.  I remember when I worked in Bogotá Colombia, they had flights every morning going to the world's fresh flow market.  The delivery of all sorts of good and services have been disrupted.


The news of Goldman's alleged securities fraud wiped out countless billions of market value with markets dropping like flies, even into today's trading, particularly in Europe and Asia.  Airline and related securities were particularly hard hit.  The American markets mostly rebounded and some even ended up in positive territory.  And of course there was limitless debate including some thoughts around the validity of the charges, and how strong the case might be.


Brad Hintz of Sandford C. Bernstein in New York raises the question of whether or not there is any case.  This fraud was filed under securities law.  And then ponders how this will all be processed considering the the synthetic CDO in question are private placement instrument - an engineered products based on swaps - a simple/complex business arrangement between two parties - with Goldman acting as the intermediary between two very sophisticated investors - John Paulson, and the German Bank.  There is not the same requirement for such instruments as compared to securities.  I can't help but think that the SEC should be a little smarter than such a simple oversight .... but one never knows.

Could the charge against Goldman Sachs and the probe of General Electric be viewed as signs that authorities are cracking down on Wall Street? BNN speaks to Brad Hintz, analyst at Sandford C. Bernstein.

I sure there will be a lot more written, and spoken as this case progresses.  Goldman has already filed several statements, including blanket voicemails to all GS staff from Lloyd himself.  The message - we are working hard to manage the issue.  Goldman has clearly stated that they do not believe they have done anything illegal.  And with all the smartest people in the world, including a legal department I would be surprised if they really did anything illegal.  


And it would seem that the markets also see this as a temproary event.  For all the hubbub given to the story on Friday, no 20period moving averages have been broken with any major indexes.  Really, the market reaction so far has been mostly mute.  Even GS own equities remained essentially flat today (up 1.63%) after losing over 12% on Friday.  Brad Hintz's analysis of the worst case costs to Goldman represent only $1.20/shr, not a material amount for them.And at that - considered a manageable expense probably 2 or 3 years out.  Brad does believe that the reputation of GS might cause some loss of discretionary trade deals that won't fall into their lap.  In his view, none of this will be the end of the GS franchise.


And none of this changes my view that I want to see this culture, typical of the investment banking industry, to finally pay the piper, and return our world to something a little more civil and respectful.  Watch and Learn.