Goldman Sachs

Let the Lawsuits Begin:
Banks Brace for a Storm of Litigation

Ellen Brown, July 13th, 2008
http://www.webofdebt.com/articles/bracing-storm.php

In an article in The San Francisco Chronicle in December 2007, attorney Sean Olender suggested that the real reason for the subprime bailout schemes being proposed by the U.S. Treasury Department was not to keep strapped borrowers in their homes so much as to stave off a spate of lawsuits against the banks. The plan then on the table was an interest rate freeze on a limited number of subprime loans. Olender wrote:

“The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value – right now almost 10 times their market worth. The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.

Calls for RBS toxic debt probe
Published Date: 22 March 2009
By Fiona Gray
CALLS for a full investigation into the behaviour of senior Royal Bank of Scotland figures strengthened last night after it emerged traders were buying billions of pounds of toxic debt at the same time Sir Fred Goodwin said the bank did not deal in the sub-prime market.

The company's board has claimed it was not told about £34bn of sub-prime mortgages purchased by RBS in 2006 which led to the bank's near-collapse.

If it is discovered Goodwin kept information from the directors there could be legal consequences, but if the board was aware of the bank's high-risk strategy they could all be held responsible for its demise.

The bank had to be bailed out by the Government last year when the sub-prime market collapsed in America as millions of people failed to make payments on mortgages they had been given which they could not afford.

The company's sub-prime mortgages were largely bought by Citizens Bank, an American RBS subsidiary, in 2006. It took on £14bn of the toxic assets.

Months later, in April 2007, one of America's largest sub-prime lenders, New Century Financial, revealed it sold 2,000 toxic mortgages to another unit of the bank, RBS Greenwich Capital Financial Products.

At the same time Fremont General Corporation, another major sub-prime lender, announced it received $1bn of credit from RBS.

In total, RBS accumulated £34bn of sub-prime mortgages, including £20bn bought by the investment banking arm. It is thought RBS's system of annual cash bonuses encouraged traders to buy up the assets.

However, Goodwin repeatedly stated at the time that RBS "did not do sub-prime", and in the foreword to RBS's 2006 annual report he wrote: "Sound control of risk is fundamental to the Group's business… Central to this is our long-standing aversion to sub-prime lending, wherever we do business."

But in the summer of 2007, he admitted to the board that traders had in fact bought up billions of pounds of toxic mortgages. RBS started to announce losses toward the end of 2007, which culminated in a loss of £28bn last month, the largest in British corporate history. They were rescued by the Government in November last year, when they offered a £20bn package to take on the majority of the toxic assets.

The board of RBS claimed the mortgages were bought without its approval and it did not know about the problem until it was too late.

A former RBS board director said: "Sir Fred told the board that the bank was not exposed to sub-prime. Only a year later did he inform the other directors that the bank had, in fact, built up a multi-billion-pound exposure."

If Goodwin, who took early retirement from the bank with a £17m pension, hid information about toxic assets from the board he could face legal action.

However, Scottish Liberal Democrat leader Tavish Scott said it was "difficult to imagine" that the board did not know what its executives were doing.

He said: "Gordon Brown's regulatory regime failed, the country knows that now. But for the former RBS board to wash its hands of any knowledge is unbelievable."

* Posted on Monday, June 7, 2010


Vowing not to be 'chumps,' financial inquiry subpoenas Goldman's records


WASHINGTON — Leaders of a government commission accused Goldman Sachs Monday of "stonewalling" their inquiry into causes of the financial crisis and said the panel has issued a subpoena to compel the Wall Street giant to produce documents and access to key executives.

In a conference call with reporters, Democratic Chairman Phil Angelides and Republican Vice Chair Bill Thomas of the Financial Crisis Inquiry Commission rebuked Goldman for what they described as "abysmal" behavior unmistakably aimed at stalling the panel for months.

"In our view, this has been a very deliberate effort over time to run out the clock," Angelides said, referring to the commission's mandate to complete its sweeping examination and submit a report to Congress by December. "We're not going to let the American people be played for chumps here."

"What have they got to hide?" asked Thomas, a former California congressman. "... It seems to me they may have more to cover up than maybe we thought or they told us they did."

Asked about the subpoena that was served Friday, Goldman spokesman Michael DuVally said: "We have been and continue to be committed to providing the FCIC with the information they have requested." However, Angelides and Thomas said that, rather than complying with the panel's requests for specific information as at least six other investment banks did, Goldman turned over five "terabytes" of data _ the equivalent of 2.5 billion pages of documents. Even then, some of the requested information appears to have been withheld, Thomas said.

"We did not ask them to pull up a dump truck to our offices and dump a bunch of rubbish," Angelides said, adding that Goldman has failed to provide an index so that investigators can efficiently search the data for the desired information.

"We should not be forced to play 'Where's Waldo?' on behalf of the American people," he said, an allusion to a popular picture game in which a man with a striped hat is hidden among hundreds of people.

In a summary of the subpoena, the commission said it sought information about Goldman's offshore sale of tens of billions of dollars in mortgage securities since 2004, including exotic transactions in which one party stood to profit if the underlying loans failed. It also sought the names of Goldman's customers that had earlier been identified only by numbers.

In addition, it requested a log of documents that the firm had previously turned over to investigators for the Senate Permanent Subcommittee on Investigations in response to a subpoena by that panel.

The commission's subpoena also demanded interviews with 10 present and former Goldman executives, including Chief Executive Officer Lloyd Blankfein, President Gary Cohn, Chief Financial Officer David Viniar and executives in its mortgage-trading unit. After the subpoena was served, Angelides and Thomas said, Goldman advised the panel it was ready to schedule interviews.

Blankfein, testified to the FCIC in January along with top officers from three other major banks. In response to questions from commission members, he pledged that his firm would voluntarily cooperate with further inquiries from the commission.

Thomas said, however, that when the commission complained about the firm's incomplete responses, Goldman cited "human error." Thomas pointed to a pattern that appeared to reflect "an agreed-upon strategy."

Goldman, the only Wall Street firm to safely exit the subprime mortgage market before the housing crash, has been at the center of inquiries into possible misbehavior by the Securities and Exchange Commission, the Justice Department, Congress, New York's state attorney general and the FCIC.

Angelides and Thomas declined to say exactly which Goldman activities their panel is investigating. However, they said that the commission had requested information on Goldman's role in buying mortgage loans and converting them to securities and as a "market maker" in peddling the securities.

The subpoena was the 12th issued by the commission, but the panel has resorted to the compulsory legal process with only one other company: Moody's Investors Service, the Wall Street credit ratings agency. Most of the other subpoenas were at the request of individuals, some of whom were prevented from fully cooperating by confidentiality agreements until compelled to do so.

Angelides and Thomas, cognizant of the tight deadline for their 50-member staff to issue a report on the roles of a broad range of institutional players in the 2008 meltdown, warned last year that they would subpoena any party that engaged in stalling tactics.

Under the law creating the commission, a subpoena only can be issued with at least seven votes from the panel of six Democrats and four Republicans.

Goldman has been unable to shake growing scrutiny of its role.

On April 16, the Securities and Exchange Commission filed a civil fraud suit accusing Goldman of allowing a longtime client, the hedge fund Paulson & Co., to rig an offshore deal so that it could bet against the mostly subprime mortgage securities. Paulson reaped a $1 billion profit, while two European banks together lost about $1 billion.

The U.S. attorney's office in Brooklyn, N.Y. also is considering whether to formally open criminal investigations into the mortgage dealings of Goldman and other major banks.

In a series published last November, McClatchy reported that Goldman had sold more than $40 billion in mortgage securities backed by dicey home loans in 2006 and 2007 without telling investors that it was betting that similar securities would default

A marathon hearing in April culminating an exhaustive inquiry by the Senate Permanent Investigations Subcommittee lent credence to that report. The panel released over 100 subpoenaed documents and charged that Goldman had secretly bet billions of dollars on a housing downturn at the same time it was selling risky residential mortgage securities.

MORE FROM MCCLATCHY

Goldman to Pay $550 Million to Settle U.S. Charges

By David Scheer and Joshua Gallu - Jul 15, 2010

Goldman Sachs Group Inc. agreed to pay $550 million and change its business practices to settle U.S. regulatory claims it misled investors in collateralized debt obligations linked to subprime mortgages.

The penalty is the largest ever levied by the Securities and Exchange Commission against a Wall Street firm, the agency said in a statement announcing the accord today. Under the deal, Goldman Sachs acknowledged it made a “mistake” and that marketing materials for the instruments had “incomplete information,” the agency said.

“This settlement is a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing,” SEC Enforcement Director Robert Khuzami said in the statement.

Goldman Sachs created and sold the CDOs in 2007, as the U.S. housing market faltered, without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against the vehicles, the SEC said in an April 16 lawsuit. Billionaire John Paulson’s firm earned $1 billion on the trade and wasn’t accused of wrongdoing.

“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,” the SEC’s statement quoted Goldman Sachs as saying in settlement documents.

The bank, based in New York, didn’t admit or deny wrongdoing under the accord, the SEC said. The payment includes a $300 million fine and $250 million as restitution to investors. The settlement is subject to a judge’s approval. .........

To contact the reporters on this story: David Scheer in New York at dscheer@bloomberg.net; Joshua Gallu in Washington at jgallu@bloomberg.net.

Original article: http://www.bloomberg.com/news/2010-07-1 ... -suit.html

After Goldman Give Up, Why Would Wall Street Be Scared of SEC?

My father was a professional gambler and used to carry a roll of money that he called "walking around" money.

Walking around money is what the SEC settled for in the Goldman Sachs case.

$550 million is walking around money to a company like Goldman Sachs. It is less than 5% of the $10 billion in bonuses it paid itself last year.

Maybe "walking around" money is an understatement.

The stock market understood that Goldman got the best of the deal. Goldman's stock price surged 4.43% on rumors of a settlement. As the Huffington Post pointed out, the stock gain was probably enough to cover the $550 million fine.......

http://www.huffingtonpost.com/don-mcnay ... 48263.html

..... the press conference on the record fine of $550 Billion on Goldman Sachs......

..... the press conference on the record fine of $550 Million on Goldman Sachs......

As a part of the settlement, the bank will pay $300 million to the SEC and the rest will be paid out to investors that were harmed through the Abacus deals, including IKB AG and the Royal Bank of Scotland. In a statement, the bank acknowledged "it was a mistake" to fail to disclose Paulson's role in selecting the Abacus assets.

With a cost of roughly $550 million (plus millions in legal fees), Goldman Sachs likely came out ahead for the day, as the stock's surge added hundreds of millions to the bank's market cap. The settlement amount comes to roughly 3.4 percent of the bank's 2009 bonus pool.

Still, the bank's stock surged today (scroll down for a chart) rising 4.43 percent as rumors swirled about a settlement. (The bank's stock continued rising an additional 5 percent in after hours trading.)

From the SEC's press release on the settlement:

Securities and Exchange Commission today announced that Goldman, Sachs & Co. will pay $550 million and reform its business practices to settle SEC charges that Goldman misled investors in a subprime mortgage product just as the U.S. housing market was starting to collapse.


In agreeing to the SEC's largest-ever penalty paid by a Wall Street firm, Goldman also acknowledged that its marketing materials for the subprime product contained incomplete information...


In settlement papers submitted to the U.S. District Court for the Southern District of New York, Goldman made the following acknowledgment:


Goldman acknowledges that the marketing materials for the ABACUS 2007-AC1 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.

I noted that that, by the end of June, Wall Street had already given Obama $9.5 million, that four out of his top five contributors are employees of financial industry giants, with Goldman Sachs at the top of the list. Even conservative New York Times columnist David Brooks was appalled: "Over the past few years, people from Goldman Sachs have assumed control over large parts of the federal government. Over the next few they might just take over the whole darn thing."

More importantly, Goldman avoided the fraud allegations it feared the most. The one misdeed it to which it confessed—omitting the role of hedge fund manager John Paulson in selecting the securities that went into the synthetic collateralized debt obligation at the heart of the case—is the least damaging in terms of Goldman’s reputation and future legal liability.

In its original complaint, the SEC had accused Goldman of violating Section 10(b) of the Exchange Act and Section 17(a) of the Securities Act. Both are anti-fraud provisions. Like most anti-fraud statutes, Section 10(b) requires the government to prove a fraudulent intent. The first subsection of Section 17(a) also requires proof of fraudulent intent.

But the second and third subsections of 17(a) do not require any proof of intent to defraud.

This makes accusations based on the second and third subsections much easier to prove—and perhaps easier for Goldman to stomach.