Does the SEC have a poor case against Goldman?
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  Does the SEC have a poor case against Goldman?
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Author Topic: Does the SEC have a poor case against Goldman?  (Read 928 times)
Beet
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« on: April 21, 2010, 06:45:09 AM »

The NY Times' polite way of saying the SEC may actually be underdog here:

"In accusing Goldman Sachs of defrauding investors, regulators are not only taking aim at a company with deep pockets and a will to fight — they are also pursuing an unusual claim that could be difficult to prove in court, legal experts said.

...


that the strength of the S.E.C.’s case is impossible to gauge until the agency discloses more of the evidence it has assembled. So far it has provided only a sketch.

...


To win its case, the S.E.C. must prove that Goldman was not merely silent about Mr. Paulson’s role but actually gave investors the wrong impression, experts in securities law said. Then it must prove that the missing information was material, a legal term meaning that investors armed with that knowledge might have decided not to buy the product from Goldman, or to do so at a lower price.

Allen Ferrell, a law professor at Harvard, said the suit rested on an unusual definition of material information.

...

But Donald C. Langevoort, a law professor at Georgetown University, said the case was consistent with other government efforts in past years to broaden the definition of material information.

...

Richard W. Painter, a corporate law professor at the University of Minnesota, said the novel nature of the fraud charges made it important for the S.E.C. to disclose more details quickly, so that markets were not paralyzed by uncertainty over the boundaries.

“The S.E.C. needs to step to the plate with very specific facts and make it clear what they think Goldman did that was wrong,” Professor Painter said."

http://www.nytimes.com/2010/04/20/business/20sec.html?pagewanted=2&ref=business&src=me

Ouch. Not lookin' good for the SEC. Even to those sympathetic, their case rests on "broaden[ing] the definition of material information."
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Beet
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« Reply #1 on: April 21, 2010, 09:39:21 AM »

Update

http://finance.yahoo.com/news/Testimony-Could-Undercut-SEC-cnbc-3160283437.html?x=0&sec=topStories&pos=main&asset=&ccode=

Amazing! If this case falls through before it even goes to court Mary Schapiro's career is over.
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Sam Spade
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« Reply #2 on: April 21, 2010, 09:50:15 AM »

It looked weak to me when I saw it.  But then again, the SEC is really incompetent.
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opebo
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« Reply #3 on: April 21, 2010, 10:11:46 PM »

One would like to believe that the merits of the case are unimportant - the regulatory agency should have an enormous amount of leeway in governing these government clients.
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phk
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« Reply #4 on: April 22, 2010, 12:08:11 AM »

One would like to believe that the merits of the case are unimportant - the regulatory agency should have an enormous amount of leeway in governing these government clients.

No they should not.
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Torie
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« Reply #5 on: April 22, 2010, 05:05:25 PM »

The facts are a bit confused to judge. The issue is whether Goldman knew the bonds were hand picked by a third party as likely to underperform vis a vis similar grade bonds that were put into the pool, and failed to disclose such methodology, if in fact that occurred. If it was more of just a generic bet against low grade bonds, then I don't think anyone would care much and the non disclosure would thus not be material.
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phk
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« Reply #6 on: April 22, 2010, 06:40:25 PM »

The facts are a bit confused to judge. The issue is whether Goldman knew the bonds were hand picked by a third party as likely to underperform vis a vis similar grade bonds that were put into the pool, and failed to disclose such methodology, if in fact that occurred. If it was more of just a generic bet against low grade bonds, then I don't think anyone would care much and the non disclosure would thus not be material.

I believe in a sense, it should be OK to write a bad derivative and bet against it, as long as there's full information of course.
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Torie
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« Reply #7 on: April 22, 2010, 10:29:46 PM »

The facts are a bit confused to judge. The issue is whether Goldman knew the bonds were hand picked by a third party as likely to underperform vis a vis similar grade bonds that were put into the pool, and failed to disclose such methodology, if in fact that occurred. If it was more of just a generic bet against low grade bonds, then I don't think anyone would care much and the non disclosure would thus not be material.

I believe in a sense, it should be OK to write a bad derivative and bet against it, as long as there's full information of course.

Ya, the suit is all about a lack of disclosure.
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ag
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« Reply #8 on: April 22, 2010, 11:07:04 PM »

I don't know what the law is. On my view of what the law "should" be, it has no case. But, of course, that's irrelevant Smiley)
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Beet
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« Reply #9 on: April 24, 2010, 03:10:32 PM »

I feel like I owe the SEC a riposte, provided by Barry Ritholtz:

10 Things You Didn't Know (or were misinformed) about the GS case

(the first 'myth' is "This is a Weak Case")

Barron's, in noting Ritholtz, writes "Especially among folks who haven’t bothered to read the complaint, which, as we noted last week, was a model of clarity, the feeling is that the SEC has a weak case."
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Landslide Lyndon
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« Reply #10 on: April 24, 2010, 03:29:28 PM »

Pardon my ignorance, but even if GS settles or gets acquitted due to technicalities, hasn't this entire case inflicted great damage to its credibility among investors?
Can they recover and become once again what they were/are?
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phk
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« Reply #11 on: April 24, 2010, 04:46:34 PM »

Pardon my ignorance, but even if GS settles or gets acquitted due to technicalities, hasn't this entire case inflicted great damage to its credibility among investors?
Can they recover and become once again what they were/are?

People at school are still dying to work for them.
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