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According to the Collins English Dictionary 10th Edition fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage".[1] In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain
*As defined in Wikipedia

Monday, April 25, 2011

Goldman Sachs Had (Has?) Friends at the SEC

The article below is a heart warming story about two men, Lorin Reisner and Kenneth Lench, who helped the SEC prepare and win a civil fraud suit against Goldman Sachs in 2010. They did, indeed, do a wonderful job in pursuing and staying with the suit and are to be commended. But the part of the article that caught my attention was the reference to those in the SEC who did not want to pursue the Goldman Sachs suit: "Opposition within the agency was so fierce it led to a non-unanimous vote to pursue the suit."

That sentence tells us the real story of why Wall Street and Goldman Sachs are not being criminally prosecuted and why no one is ever going to jail. The SEC excuses as listed in the article are nothing more than appalling platitudes:

The SEC was too weak;

The SEC might fail;

The SEC was nervous;

Morale at the SEC was low;

SEC was wary of further criticism of Wall Street and a backlash might result if they lost;

The SEC's reputation might be harmed;

The SEC is afraid of negative publicity.

Come on, get serious!! These are inexcusable excuses for not doing your job! I hope all these other folks have been weeded out of the SEC.

Finally, the idea that Goldman Sachs could just phone the SEC and make a deal to pay a fine and not have to answer to a jury is corruption at work. We can see where the worm has been gnawing away at the honesty and uprightness of the justice system.

Taking on Wall Street

By Gregory Zuckerman - Brandeis Magazine

Lorin Reisner ’83 and Kenneth Lench ’84 were about to take on perhaps the most important lawsuit in the history of the Securities and Exchange Commission.

It was April 2010, and Reisner, the deputy director of the SEC’s enforcement division in Washington, D.C., and Lench, head of a key unit in the division, were preparing a civil fraud suit against Wall Street powerhouse Goldman Sachs.

The Brandeis graduates had helped successfully convince the SEC’s five commissioners to vote for the suit, arguing that 
Goldman misled investors about complex securities at the heart of the mortgage meltdown. But opposition within the agency was so fierce that it led to a nonunanimous vote to pursue the suit.

Nervousness within the SEC was understandable. The agency, charged with policing the nation’s financial markets, had been excoriated for missing a series of scandals, including Bernard L. Madoff’s huge Ponzi scheme and an alleged multibillion-dollar fraud by 
R. Allen Stanford. The worst financial collapse since the Great Depression left many outraged at those who crafted mortgage-related products at the heart of the losses, as well as at the SEC and other regulators charged with acting as the markets’ watchdogs.

The situation had hurt morale within the agency; some were wary of further criticism on Wall Street and a backlash if the SEC picked a fight with Goldman Sachs, Wall Street’s dominant force, and lost. Reisner, an outgoing and upbeat presence at the agency who favors fashionable eyeglasses and Hermes ties, tried to rally his team. “Let’s not be afraid to do what’s right,” he told them.

The lawsuit was filed in April 2010, instantly grabbing front-page headlines around the globe. Reisner and Lench believed in the strength of their suit, but Goldman Sachs had a battalion of top lawyers at its disposal. The firm denied it had duped investors, and some legal experts were dubious of the SEC’s case. Some suggested the suit was politically motivated.

If the suit went awry, it would cripple the reputation of the beleaguered agency, Reisner and Lench knew, making the SEC less likely to pursue future tough cases. “We had been beaten about the ears for so long and criticized for being soft,” Lench recalls. “You can’t help but get a little demoralized when everyone is throwing bricks at you. This was a big deal. If we lost, it would be a huge embarrassment; we’d be the gang who couldn’t shoot straight.”

. . . .

The SEC filed its suit in April. It was front-page news in The Wall Street Journal and The New York Times. Goldman’s attorneys said they were confident they could beat the lawsuit. Their defense: The firm was creating a product for its customers and didn’t have a legal obligation to tell clients all the details of how it was created. The investors were big boys who could decide for themselves if the investment was attractive, people close to 
Goldman said at the time.

The agency had warned Goldman it was stalling by not moving 
fast enough to provide documents and responses to the SEC. 
Reisner signaled an eagerness to lead a possible trial, an unusual step for such a senior SEC member, and one that illustrated the importance of the case to the agency.

While the outside world focused on the face-off between the government and the Wall Street powerhouse, Lench acknowledges today that he shared some concerns about the success of the case, even as he urged his team to push ahead. The complicated nature of the case might be hard to argue to a jury, he knew.

But he and Reisner also were privy to a secret that few on Wall Street were aware of. Within weeks of the suit, Goldman Sachs had reached out to the SEC to explore a possible settlement, according to a report issued recently by the SEC’s inspector general. It reassured them that the SEC had a strong case — and that Goldman knew it.

By July, three months after the lawsuit was filed, Goldman called, ready to cut a deal. The firm agreed to pay a $550 million penalty, one of the largest in Wall Street history. It also acknowledged mistakes made in crafting the deal, a rare admission.

Some critics said the penalty was too small, noting that it represented just 14 days of profits at Goldman in its most recently completed quarter. Others said it was too large and that Goldman might have fared well in a trial.

To Reisner and Lench, the settlement was a clear victory — a message to Wall Street about the need to provide truthful information to investors, and a signal that the SEC was newly prepared to take on challenging cases.

“Half-truths and deception cannot be tolerated” in the securities markets, Reisner told reporters at the time.

One former SEC enforcement attorney put the case in perspective. “The SEC used to be very reluctant to prosecute cases unless they were almost assured of victory; they were afraid of negative publicity and adverse legal precedent,” says fellow Brandeis alumnus Ronald Rubin ’83, who now is in private practice.

“The SEC has recently demonstrated a much greater willingness to take on difficult and complex litigation,” says Rubin. “That’s an aggressive approach that Rob Khuzami and Lorin have brought.”

In addition to the Goldman settlement, Reisner has helped direct a series of successful cases involving other well-known financial companies at the heart of the meltdown, including Countrywide Financial, New Century Financial, State Street, Morgan Keegan, Bank of America, JP Morgan, Citigroup and others.

You can read the full article here


Anonymous said...

I wonder why Spitzer doesn't get to head the SEC ??

I have to admit the miners have been getting hit rather hard, but this is just another characteristic of the way in which the trading desks and hedge funds have a relatively free hand in the US to manipulate the market for their own benefit, naked shorting, whatever they wish to do with no uptick rule. If you wish to reform the markets, look to the regulators and their backgrounds, and the actions they have taken with investigations. If Obama replaced Gary Gensler with Eliot Spitzer then we might see something done, but the banks would not like that, and Obama is in the process of collecting a billion dollars in campaign funds."

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