Wednesday, April 21st, 2010
26

A Million Bankers Laughing: SEC Totally Hosed in Goldman Case

SOMEBODY'S WATCHING YOUGood grief. So, to back up a little, the crux of the SEC's case against Goldman Sachs is that it was never disclosed that, when Paulson & Co assembled a motley pile of CDOS for an outfit called ACA to sell to our German bank friends, Paulson actually intended to short against those CDOs. (In popular parlance, "to bet against" those CDOs. And when that package went south, Paulson cleaned up.) So! And now it turns out that a Paulson guy, Paolo Pellegrini, went to the assemblers at ACA and informed them of this! He had an entire meeting scheduled with ACA's CDO person devoted to this topic. Based on what we know now, which of course is not everything, we'd say: Updated chance of Goldman conviction: 1%. Updated chance of Goldman paying out a settlement: SOME HUGE NEGATIVE NUMBER.

26 Comments / Post A Comment

Abe Sauer (#148)

Christ, I don't know how I feel about this at all now. Yes, it's good that the SEC tried to charge them with SOMETHING (maybe?). But this laughable pooch-screw might hurt future enthusiasm for trying again (maybe?)! GAH!

Slava (#216)

Shouldn't they be tracking down the banks that assembled the Magnestar-bought CDOs? Because from the information released so far, a whole bunch of those have been assembled to lose.

barnhouse (#1,326)

My resident securities expert offers the following: To my mind it's the ultimate buyers of the CDO that were ripped off here and the case still stands, such as it is. Goldman's case is, in part, that they lost $90mm on the deal. Quite likely, the reason they lost it is that they couldn't sell the whole deal and had to keep it on their books; in which case it's no excuse at all, it just means they couldn't find enough suckers.

Abe Sauer (#148)

@barn: YES! The evidence that Goldman ate a huge loss on some of their deals is, despite what seems like a lot of reasoning, NOT evidence that they did nothing wrong. Is a burglar innocent because he couldn't find a fence for his goods?

Is there any reason to believe anything any of these guys say?

theheckle (#621)

I ask that question about Balk and Choire every day. Thus far, the answer has been an unconditional yes. They can can do no wrong.

Pintonator (#2,236)

No, there isn't, and I have no idea why Choire is doing so here. If the SEC had this before it brought the case — and it sounds like they did — then I would not assume they are unable to refute this testimony.

sigerson (#179)

This is such bullshit. The HIGHLY SELECTIVE excerpting of deposition transcripts doesn't directly undercut the SEC's case. The German bank wasn't at these meetings and it doesn't address the misleading suggestion that Paulson was going to take a chunk of the equity tranche (when in fact he never did).

Hoover (#2,245)

Agreed. This story looks to me like a big bait-and-switch.

There should be a document trail supporting Pellegrini's testimony. Otherwise, looks like a big, fat fucking lie.

HiredGoons (#603)

Why are the two enabling parties in this debacle (banks, gubment) running this fucking show?

roboloki (#1,724)

kind of like inviting my dealer to my intervention.

roboloki, If you die he loses a client.

HiredGoons (#603)

Dude, can I get a bailout?

The dealers in my neighborhood here were selling "bailout" rocks about a year ago.

Mindpowered (#948)

Eh. ACA was in on the shenanigans from start. They knew it was going to fail, Goldman knew it was going to fail, and Paulson knew it was going to fail.

Deutche Bank & others did not. The crux is, nowhere in the 178 page offering document, did it mention that Paulson was within 100 miles of this bundle of joy or that ACA took 55% of Paulson's recommended CDOs. Goldman used its reputation, and ACA to mask that Paulson had made a bundle of shit to sell, and to then use Goldman to bet against erstwhile bundle.

Alternatively, Goldman HAD NO FUCKING CLUE that the housing market was going to hell in a hand basket, and that EVIL FRENCHMAN was shooting money around aimlessly and a circus chimp could have done better than the senior executives at oversight and risk management.

sigerson (#179)

Exactly. ACA was the toady and supposed "third party" that was as conflicted, compromised and generally useless as the ratings agencies.

Mindpowered (#948)

(A recent release of the original offering document has been found)

To: Le Banque Bosche

Sir,

Would vous like like zis bag of mounstruous merde? Alors, you boche it has been been constructed by ze finest short zeller on street of walls. Mais ouis, it will make mois et him tres riche, but vous le broke. So lap it up toute siute you bosche, and remembre, Goldman is la Fab Fabulous.

Zut Alors,

Monsiore Sachs.

Bittersweet (#765)

Zut alors, c'est magnifique, ca. Boche ou Goldman, ils sont tous des super cons.

nyssa23 (#4,503)

Somewhere, Dave Bry's French teacher is crying.

Good lord, Choire, your cheering on of GS in this matter is as baffling as it is misinformed. First off, the SEC's complaint alleges 2 misreps: (1) to investors, by way of the offering materialsl; and (2) to ACA. If this alleged testimony were to be believed, that would only affect (2), not (1).

Second, so what if a Paulson guy says they disclosed everything? What the hell do you expect him to say? I don't know what it's like in your head, but here in the real world, the fact that person A says X is not the equivalent of X is actually true. (And of course, all of this is reported by fucking CNBC, of all people.)

Of course, the SEC may yet be shown to be full of shit. Your faith in Goldman Sachs, though, is disturbing.

sigerson (#179)

I wouldn't say that Choire has "faith" in, or is "cheering on" Goldman Sachs. If anything, this post is a panicky freakout.

atlasfugged (#4,481)

Choire must be knee-deep in Goldman stock, otherwise I don't understand the boner he has for the defendants in this seemingly inevitable lawsuit.

W Sly (#4,513)

Despite the reports that linked Goldman Sachs to AIG's troubles. Despite the reports that placed Goldman Sachs knee-high in the manure of America's economic slide, is anyone really surprised that the United States justice system isn't pursuing Goldman Sachs with a vengeance?
If Goldman Sachs were criminally pursued for anything more than spitting on the sidewalk, one hell of a lot of holes would appear on the White House Staff Roster.
I stand corrected! There already exists a plethora of HOLES on the White House Roster starting at the top.
To coin an old John Lennon lyric, "Now we know how many holes it takes to fill the (White House) Alfred Hall."

OuackMallard (#774)

I think you mean they intended to "short" those CDOs. I've never heard anyone say they were going to "short against" something.

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