The SEC's civil suit against Goldman Sachs charges the firm with not disclosing information. I won't bother with the detail, you can read that amply elsewhere -- the point is, the charge is non-disclosure.
Now, that's an interesting charge. It amounts to some form of misrepresentation. In the non-legal world, that's generally known as lying. In that same world, the teenager defense of "I didn't actually tell a lie, I just let you think what you thought" is considered a distinction without a difference.
The point is, the SEC chose to charge Goldman with something that's not only illegal, but resonates easily with Main Street as also being unethical. Since the gap between the illegal and the unethical is one of the main casualties of the recent financial debacle, this is a welcome sign -- a charge that at least tries to re-unite the legal and the ethical.
The Spin
Goldman itself responded that the charges are "completely unfounded in law and fact." Look for a splitting hairs defense a la "it depends on what the meaning of the word 'is' is."
Goldman and others make several arguments that are pointedly red herrings. One is that they didn't do this transaction to short the market (non-responsive). Another is that the buyers of the CDOs were big boys, and should know what they were getting into (ditto). Another (by Goldman) is that they themselves lost money on the deal (again...).
The pro-Wall Streeters are not alone. NBC News led with "if the government is right, people all across the country are still paying the price for schemes like this that we're only learning about now." Their commentator presented the charge as betting against a carefully constructed product; not the SEC charge. Lisa Myers said, "essentially Goldman Sachs is accused of helping rig the game against investors." And Robert Reich said the real crime is not what was done illegally, but what was done legally. Fair point, but not a commentary on the crime.
CNBC's Erin Burnett, and Joe Kiernan on Monday, tried to get commentators to say it was suspicious timing, to buttress financial legislation in Congress or to deflect press attention from the SEC's shortcomings in the Stanford case. Again -- not on point.
What the SEC Did Right
I'm no lawyer, but I'm guessing the SEC could have pursued many other charges. It chose to pursue this one -- the legal equivalent of what laymen call 'lying.' Lying is the most trust-corroding thing that can be done. It not only ruins credibility, it casts motives into doubt. Lying kills trust.
A charge of failure to disclose is exactly the kind of charge a responsible regulator should be pursuing. It reunites the legal and the ethical -- a casualty of Wall Street's actions -- and aims at restoring trust.
Greed is not illegal, though it may be unethical; ditto for fleecing one's customers. But lying -- or the near-equivalent of selective disclosure -- is both.
Good for the SEC for taking this route.
Follow Charles H. Green on Twitter: www.twitter.com/charleshgreen
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You want to know what Goldman did wrong? Listen carefully: they are charged with breaking the law. Period.
The law says, thou shalt reveal material information. The SEC says they didn't do that.
It matters not one whit whether their market-making function is legitimate--and I happen to agree with you that it is. It matters not one whit whether the other side of the trade was sophisticated, or not.
The SEC is not "taking a stand against Goldman for acting as the middle-man in this transaction." Read the complaint: the complaint says they failed to reveal material information. Which is against the law. That is what they allegedly did wrong.
We shall see whether that charge is or isn't proven. But all your defenses are against imagined charges--the only real charge here is whether or not they failed to reveal material information.
And the reason I think that is a great thing that the SEC charged them with is because that is fraud, or misrepresentation, and the line between that and lying is a little bit like technical virginity; only the alleged virgin and maybe the pope care about it.
I don't understand what you're talking about. When various hedge funds that knew what was going on put HUGE short bets against Enron before the company blew up, was eTrade or the New York Stock Exchange obliged to tell the buyers who the sellers were? And that was innocent retail investors buying, not large asset managers.
Why is this any different? Goldman is in the business of putting buyers up against sellers for securities that are not listed on the exchange. It's normal practice to protect the anonymity of the buyers and sellers. Why shouldn't they? Especially when dealing with professional buyers and sellers. It's also normal practice for buyers and sellers to pick the securities they want to buy or sell and the market maker to find the other side of the transaction. It happens everyday, just as it should.
Spivvy hedge funds lose money on these types of transactions all the time. In this case, the hedge fund didn't lose money but the big asset manager did. I still don't get what GS did wrong here, other than protect the anonymity of a customer and have a verbose 29-year old member of a team that wrote dumb emails to his girlfirend.
Every day this matter remains in the courts allows the perps the opportunity to perpetuate the practice., So we can expect it will be dragged out as long as possible. With our current SCOTUS, if GS can find a reason to get it up that high, they will be in fat city, and they know it.
We tried to tell the voters who elected Bush to a second term that his appointments to SCOTUS would be critical. Voters refused to listen. The logical consequence of electing a CEO was the appointment of business hacks like Alioto and Roberts. So justice now requires walking a very fine line, as we are dealing with crooks.
Mike Bridges
www.propertyexpresscrm.com