In an interesting side note to the much more publicized businesses involving John Paulson, Greece, and whatever else Goldman is currently getting tarred and feathered for, the bank was quietly slapped on the wrist by the SEC for violations related to naked short-selling.
I wrote about this last year. The story was that Goldman (and others) had extremely lax standards for locating the securities it lent out to short-sellers. When you lend securities to someone without locating the stock first, that makes it possible for that person to sell the stock without actually possessing it or intending to possess it. That’s called naked short-selling and it’s a kind of counterfeiting that pretty much everyone admits is fairly common on Wall Street, although there is wide disagreement over how harmful it is to the market.
The current story reports that the SEC fined Goldman for failing to prevent crappy locates in late 2008. They’re describing the violations as a “bookkeeping error,” probably because a systematic effort at profiteering via the enabling of naked short-sellers is not a simple thing to prove.
Read the rest here
In a related post:
Liveblogging The Bear Stearns Hearing
“I don’t read Rolling Stone.”
That’s Jimmy Cayne’s response to a Matt Taibbi article arguing that rampant, illegal naked short-selling played a huge role in destroying Bear Stearns.
Schwartz says he asked the SEC to investigate naked shorting, and that he believes “in my heart” that there was illegal market manipulation going on.
There were a lot of these investigations going at the time– I remember Barney Frank got involved for a while asking regulators to look into market manipulation. The SEC made a big deal about banning short selling for a while, but we never really heard anything about fraud investigations from this era. This is where a lot of the fraud should be taking place, and we haven’t seen much action here yet. Maybe we’ll see more now that the Goldman suit has been filed.
And speaking of manipulation, investigations and scandal, how 'bout that metals manipulation? Is there ANY market that isn't a scam? Don't you think the government would be interested in what has been described as the "Greatest Crime in History"?
After all, markets are really just a Matter of Trust