You remember the big to-do about Goldman Sachs and how the United States Securities and Exchange Commission brought a so-called landmark fraud case against the mighty Wall Street firm? If you followed the legal soap opera, you were entertained with congressional hearings, thrilled by the lurid stories and dazzled by all the posturing and pandering. Then, at the eleventh hour, as the Gulf leak was capped, as FinReg was about to be signed, the Hollywood ending came into play as the case miraculously settled for something like half a billion dollars.
According to some in the press, the settlement was a major victory for the SEC. Initial stories would have you believe that the government ground Goldman to its knees and extracted both a big-bucks settlement from the brokerage firm and an admission of fraudulent conduct. Almost a blockbuster summer movie.
Despite it all, I didn't award five stars. Frankly, I'd seen the plot before and found the whole thing anticlimactic, if not formulaic. I gave it three stars. Save your money. Wait for the DVD release.
In my recent Huffington Post column: "Daniel Dravot, Goldman Sachs, and the SEC", my disgust with Goldman was made quite clear:
There is nothing alleged in the Complaint that Goldman or any of the parties and participants should point to with particular pride. It is back-stabbing and double-dealing, no matter how permissible those acts may legally have been. The simple fact that you can do something is not, in and of itself, a compelling reason to do it...
As such, please, I am no apologist for Goldman. Moreover, no one should attempt to minimize the loathsome nature of the charged conduct. All of which leaves me shocked as I read the defenses of the Goldman settlement now emerging from a number of Wall Street pundits -- many of them who would normally be seen as liberal in their political outlook. While I can understand that the right might attack what it would view as anti-business aspects of the case, I'm puzzled as to why some on the left have flocked to the SEC's defense.
As I stated in my Huffington Post piece:
Moreover, read Paragraph 3 of the Consent:
Goldman acknowledges that the marketing materials for the ABACUS 2007-ACI transaction contained incomplete information. In particular, it was a mistake for the Goldman marketing materials to state that the reference portfolio was "selected by" ACA Management LLC without disclosing the role of Paulson & Co. Inc. in the portfolio selection process and that Paulson's economic interests were adverse to CDO investors. Goldman regrets that the marketing materials did not contain that disclosure.
While you may think you understand what Goldman acknowledges, I'm not sure that most folks appreciate the artfulness of this dodge. Goldman acknowledges that the ABACUS marketing materials were incomplete. Do you see anything that says that they were fraudulent? Do you see anything that says that Goldman distributed the materials in a fraudulent manner? Hmmm... I didn't think so. What Goldman does consent to is the characterization that it made "a mistake." Goldman also regrets that its marketing materials were incomplete.
Am I missing something? The admission of a "mistake" by Goldman Sachs is a major coup for the SEC? Let's forget, for the moment, that I'm a three decade veteran of Wall Street regulation -- both as a former attorney with two regulatory organizations and as a private practitioner representing both defrauded investors and industry clients. Put aside the legalese of this issue. Who among you actually believes that in admitting to a "mistake" that Goldman admitted to fraud?
One of the burdens of getting older is that what some call "history" is simply your recollection of events in your life. It's not a stale memory proscribed by the four corners of a yellowed, fragile newspaper or now quaint black-and-white photos. It's different than that. You were there. You saw it unfold. It's part of the fabric of your life.
Perhaps those who now describe the word "mistake" as some heroic admission are a tad too young to recall another time, when another high-profile story filled the news. Once upon a time, there was this former, disgraced American President: Richard Nixon. He would not admit that his role in the Watergate affair was more than a mere "mistake." That far but no further. He did not commit a crime. He did not defraud the American public.
Clearly, in the passage of some four decades, standards have changed -- legal, regulatory, and, sadly, journalistic. There was a time when admitting to a mistake wasn't enough. It was a mealy-mouthed equivocation. It was an evasion intent on drawing the line short of fraud or criminality. Today, if you believe some reporters and bloggers, that same word grants the SEC a huge victory.
Alas, as I said, the burdens of aging.
Let me quote from the now famous interview between David Frost and Richard Nixon. You tell me if this doesn't best frame the debate as to whether Goldman's admission of mere "mistake" is a significant concession:
David Frost: You have explained how you have got caught up in this thing, you've explained your motives: I don't want to quibble about any of that. But just coming to the substance: would you go further than "mistakes" -- the word that seems not enough for people?
Richard Nixon: What word would you suggest?
David Frost: My goodness, that's a... I think that there are three things, since you asked me. I would like to hear you say... I think the American people would like to hear you sa ... One is: there was probably more than mistakes; there was wrongdoing, whether it was a crime or not; yes it may have been a crime too. Second: I did -- and I'm saying this without questioning the motives -- I did abuse the power I had as president, or not fulfil the totality of the oath of office. And third: I put the American people through two years of needless agony and I apologise for that. And I say that you've explained your motives, I think those are the categories. And I know how difficult it is for anyone, and most of all you, but I think that people need to hear it and I think unless you say it you are going to be haunted by it for the rest of your life.
"Great Interviews of the 20th Century: 'I have impeached myself." Edited transcript of David Frost's interview with Richard Nixon broadcast in May 1977 at Guardian.co.uk at http://www.guardian.co.uk/theguardian/2007/sep/07/greatinterviews1
The Morning Email helps you start your workday with everything you need to know: breaking news, entertainment and a dash of fun. Learn more