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Goldman Sachs settles with SEC

Chappy

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Excerpted from “Goldman Sachs settles with SEC” By Francesco Guerrera, Henny Sender and Justin Baer in New York, Financial Times, Published: July 15 2010 21:14 | Last updated: July 16 2010 15:52
[SIZE="+2"]G[/SIZE]oldman Sachs agreed on Thursday to pay a lower-than-expected $550m fine to settle US regulators’ accusations that it misled investors in a mortgage-backed security – a move that ends the highest profile regulatory case since the crisis.

Although the penalty is the biggest levied on a Wall Street bank, it amounts to around a week’s worth of trading revenues for Goldman and is below the $1bn fraud the Securities and Exchange Commission had alleged in its complaint in April.

Goldman also succeeded in persuading regulators to move the settlement away from civil fraud accusations to focus on its admission that the marketing materials for the collateralised debt obligation “contained incomplete information”.

The bank said it was a “mistake” to state that the loans contained in the CDO had been selected by a third party without mentioning the role of Paulson & Co, a hedge fund that bet against the security.

Goldman, which had denied the SEC accusations, did not admit or deny the charges, as it is customary in these cases, but did pledge improvements to its internal practices and controls. …

It seems like both sides blinked. The government obtained an admission that Goldman Sachs misled its customers instead of the outright fraud contained in the complaint and barely half of the proposed fine. I guess one could call that good lawyering on both sides but it reaffirms my sense that the little guy stands not one chance on Wall Street.
 

jujuman13

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Should have been fined 10 times that amount, that might have then been taken that the Government actually means business.
The amount they were fined is merely a tickle.
 

danarhea

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It seems like both sides blinked. The government obtained an admission that Goldman Sachs misled its customers instead of the outright fraud contained in the complaint and barely half of the proposed fine. I guess one could call that good lawyering on both sides but it reaffirms my sense that the little guy stands not one chance on Wall Street.

That fine is about 2 days of profits. I don't think that is going to teach Goldman-Sachs any lesson at all. LOL.
 

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Since our government is pretty much owned by Goldman Sachs, it came as no surprise to me at all.
 

drz-400

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It seems like both sides blinked. The government obtained an admission that Goldman Sachs misled its customers instead of the outright fraud contained in the complaint and barely half of the proposed fine. I guess one could call that good lawyering on both sides but it reaffirms my sense that the little guy stands not one chance on Wall Street.

This was the largest penalty ever paid by a wall street firm and I am not sure who you could call the little guy here. Regardless, the case against GS is akin to a car dealership selling a car to a mechanic and failing to disclose that the person who sold it to them said it has started to burn a lot of oil.
 

The Dane

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What Goldman Sach's did is done all day on wall street, there was nothing illegal about it both the government and GS knew that. What needs to happen is a change of atmosphere on wall street, not a witch hunt on GS.
 

BmanMcfly

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This was the largest penalty ever paid by a wall street firm and I am not sure who you could call the little guy here. Regardless, the case against GS is akin to a car dealership selling a car to a mechanic and failing to disclose that the person who sold it to them said it has started to burn a lot of oil.

Umm... there are laws concerning 'proceeds from crime'... I'm pretty sure it gets used alot against drug dealers, but really... open and pre-meditated fraud.

Crime does pay in america.
 

drz-400

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Umm... there are laws concerning 'proceeds from crime'... I'm pretty sure it gets used alot against drug dealers, but really... open and pre-meditated fraud.

Crime does pay in america.

I think those involved with the deal got repaid in full, and the SEC got money as well. Anyways, the fraud allegations were dropped. I think the case against goldman was fairly weak, but that does not mean I think what happened was right, just not illegal. Of course the statement did say the information goldman failed to give was material, so I guess I could be wrong. I just think at the time it would have made little difference to those invovled if goldman had disclosed paulson was involved in selecting the assets.
 

BmanMcfly

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I think those involved with the deal got repaid in full, and the SEC got money as well. Anyways, the fraud allegations were dropped. I think the case against goldman was fairly weak, but that does not mean I think what happened was right, just not illegal. Of course the statement did say the information goldman failed to give was material, so I guess I could be wrong. I just think at the time it would have made little difference to those invovled if goldman had disclosed paulson was involved in selecting the assets.

Actually, a big company like Goldman would be worth fighting to protect legitimate earnings, that they made a deal is an admission of guilt, but you admit to a lesser crime. You don't admit to a crime if you're innocent, unless you don't have the money to put up a fight, which I don't think applies this time.

Then, you consider the number of times the crime had been done before being caught for that crime. So, the 550 million is peanuts to these guys.
 

drz-400

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Actually, a big company like Goldman would be worth fighting to protect legitimate earnings, that they made a deal is an admission of guilt, but you admit to a lesser crime. You don't admit to a crime if you're innocent, unless you don't have the money to put up a fight, which I don't think applies this time.

Then, you consider the number of times the crime had been done before being caught for that crime. So, the 550 million is peanuts to these guys.

There was always going to be a settlement in this case, only the terms were up for changing. They did not admit a crime in the settlement. They admitted that the inaccurate statements were material as a part of the settlement and paid back the parties involved pretty much in full.

You have to consider who this case came out tilted against. You say the $550 mil was chump change, so does that mean goldman came out on top, avoiding charges of outright fraud? Or maybe the fine was big enough, and the fact that goldman had to admit that its inaccuracies and failure to disclosure meant material losses, and the SEC won the case.

Personally, I think since the SEC came out on top, making goldman admit the inaccuracies were material and making them repay in full. However, that does not change my opinion that the case against goldman was weak, look at my analogy. I think what goldman did was wrong, was not the best practice, but would have made little difference in the end for the parties involved.
 

BmanMcfly

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There was always going to be a settlement in this case, only the terms were up for changing. They did not admit a crime in the settlement. They admitted that the inaccurate statements were material as a part of the settlement and paid back the parties involved pretty much in full.

Yes, they settled because those 'innaccurate statements' were made in a misleading fashion. In other words, they KNEW that those derivatives were worthless, but sold them anyway. That's pretty well the definition of fraud.

You have to consider who this case came out tilted against. You say the $550 mil was chump change, so does that mean goldman came out on top, avoiding charges of outright fraud? Or maybe the fine was big enough, and the fact that goldman had to admit that its inaccuracies and failure to disclosure meant material losses, and the SEC won the case.

Ok, let's say that the 550mil essentially repaid back everyone... that's forgetting the capacity of banks to loan out ten times the amount that they are holding. So, they got to work with 5 billion dollars because of this fraudulent documenting practices.

Also, it's neglecting the fact that these are equally CRIMINAL charges, that should have seen the CEO's facing jailtime.

Personally, I think since the SEC came out on top, making goldman admit the inaccuracies were material and making them repay in full. However, that does not change my opinion that the case against goldman was weak, look at my analogy. I think what goldman did was wrong, was not the best practice, but would have made little difference in the end for the parties involved.

And they profited of their crime. It's ok, they are 'too big to fail' so they can do what they want.
 

drz-400

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Yes, they settled because those 'innaccurate statements' were made in a misleading fashion. In other words, they KNEW that those derivatives were worthless, but sold them anyway. That's pretty well the definition of fraud.

They did not know anything was worthless. They failed to disclose certain information, like saying paulson was going short. Thats it.

Here is what happened, paulson came to goldman and said, I want to go short in these particular securities.

Goldman creates a CDO to sell.

Goldman finds someone willing to buy these securities, if a third party selects the underlying assets.

Goldman hires a third party, ACA, who is a specialist with these type of securities. They along with paulson select the underlying assets.

ACA, IKB, and some others go long in this security without knowing that Pauson was going short.

The problem came about because goldman never told ACA that paulson was going short. They allegeged a conflict of interest and a failure to disclose material information. Goldman has admitted this was wrong, and repayed in full and will change its practices.

Personally, I think that had ACA and IKB known paulson was going short, it would have made little difference at the time since he was essentially a nobody, and ACA and IKB were specialists, and ACA was itself involved in selecting the underlying assets.

Ok, let's say that the 550mil essentially repaid back everyone... that's forgetting the capacity of banks to loan out ten times the amount that they are holding. So, they got to work with 5 billion dollars because of this fraudulent documenting practices.

GS was the underwriter in this particular deal. Think of them as getting broker fees for the deal.

Also, it's neglecting the fact that these are equally CRIMINAL charges, that should have seen the CEO's facing jailtime.

Goldman is a corporation, their CEO's have limited liability.



And they profited of their crime. It's ok, they are 'too big to fail' so they can do what they want.

How did they profit from this deal?
 

obvious Child

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That fine is about 2 days of profits. I don't think that is going to teach Goldman-Sachs any lesson at all. LOL.

Which is ridiculous in the first place. Goldman did nothing wrong. The German bank that got screwed totally failed to its due diligence. That's not Goldman's fault.
 

obvious Child

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They did not know anything was worthless. They failed to disclose certain information, like saying paulson was going short. Thats it.

Which isn't GS's fault. They didn't know they were worthless because they never took the time to look.

ACA, IKB, and some others go long in this security without knowing that Pauson was going short

The problem came about because goldman never told ACA that paulson was going short. They allegeged a conflict of interest and a failure to disclose material information. Goldman has admitted this was wrong, and repayed in full and will change its practices.

That's irrelevant. Paulson going short does not impact the underlying value of the securities in any way. The collaterized securities were garbage independent on Paulson's actions. ACA and IKB did not do their diligence. And I believe GS did not hide anything relevant about the value of the securities themselves. What Paulson did is irrelevant to what the investors should have done. I believe the German bank had a totally moronic policy of treating all subprime as the same. I have no sympathy for them. They failed to do what was necessary to examine the underlying assets and got burned. Paulson going short is completely irrelevant to the investors' responsibilities.

The government should have never fined GS or even brought this to court.
 

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As long as so called "banks" are allowed to deal in derivatives and other such shady "investments" this kind of criminal activity will continue. It is "fruit of the poison tree".
 
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