Goldman Sachs Should Be Embarrassed and Chastened

Goldman Sachs and Merrill Lynch were unsuccessfully sued by Overstock in a California court.  Goldman sought to have the court documents sealed for various reasons.  However, the lawyers for Goldman accidentally filed Overstock's motion while in the process of opposing the unsealing of the documents.  Thus the public is able to see how Goldman Sachs was viewed in those documents.

We can see why Goldman would have preferred to keep its embarrassing and/or illegal activities out of the public eye.  Below are some excerpts from the court document:

. . . .

        "Likewise, Goldman Defendants seek to seal emails reflecting their firm-wide policy to fail short sales of their market maker clients by withholding inventory for settlement:

  Ex.7 to Sommer DSJ Decl.:  This email informs GSEC's largest client, Wolverine Trading, that "we will let you fail," in response to an inquiry by Wolverine as to whether there was some effort "at cleaning up" fails."  (Page 16)

 . . . .

        "In spite of the lack of confidentiality designation, Goldman wants to keep Cohodes transcript nonpublic because of potential embarrassment, including testimony such as the following:

Q. Well, do you know how--do you have any view as to whether the securities lending market is actually efficient of inefficient?

A.  I think the securities lending market is just like the mob.  I think it's completely rigged.  It's a completely manipulated black hole, non-transparent market.

Q.  Now, when you say you think they're just like the mob, are you referring to Goldman Sachs?

A.  Yes.  I think Goldman Sachs is like the mob.

Q.  And are you referring to them in particular or them and the rest of the market altogether?

A.  I think Goldman Sachs is racketeering entity that does whatever they can to make a dime without conscience, thought, foresight or care about ramifications.  I think they are cold-blooded and could care less about the law.  That's my opinion.  I think I can back it up."  (Page 20-21)

. . . .

         "Defendants should be embarrassed and want to hide details of setting up their systems to intentionally fail to deliver stocks, given that their central role in the integrity of the United States stock market is to ensure delivery of stock.  Goldman Defendants should be embarrassed and want to hide details of their options market maker exemptions to meet their stock lending demands and perpetuate short selling in vulnerable stocks, thereby destroying companies in order to earn Goldman more profits.  These facts are shameful.  However, the fact that Defendant's actions are embarrassing and not the type of information they want known to the public does not qualify them for the narrow, limited sealing of public records available under California law."  (Page 31)

. . . .

 Matt Taibbi does a masterful job of delineating the contents of the court document and maps out the important parts:

Accidentally Released - and Incredibly Embarrassing - Documents Show How Goldman et al Engaged in 'Naked Short Selling'

By Matt Taibbi - RollingStone

 . . . .

The lawsuit between Overstock and the banks concerned a phenomenon called naked short-selling, a kind of high-finance counterfeiting that, especially prior to the introduction of new regulations in 2008, short-sellers could use to artificially depress the value of the stocks they’ve bet against. The subject of naked short-selling is a) highly technical, and b) very controversial on Wall Street, with many pundits in the financial press for years treating the phenomenon as the stuff of myths and conspiracy theories.

Now, however, through the magic of this unredacted document, the public will be able to see for itself what the banks’ attitudes are not just toward the “mythical” practice of naked short selling (hint: they volubly confess to the activity, in writing), but toward regulations and laws in general.

“Fuck the compliance area – procedures, schmecedures,” chirps Peter Melz, former president of Merrill Lynch Professional Clearing Corp. (a.k.a. Merrill Pro), when a subordinate worries about the company failing to comply with the rules governing short sales.

We also find out here how Wall Street professionals manipulated public opinion by buying off and/or intimidating experts in their respective fields. In one email made public in this document, a lobbyist for SIFMA, the Securities Industry and Financial Markets Association, tells a Goldman executive how to engage an expert who otherwise would go work for “our more powerful enemies,” i.e. would work with Overstock on the company’s lawsuit.

“He should be someone we can work with, especially if he sees that cooperation results in resources, both data and funding,” the lobbyist writes, “while resistance results in isolation.”

There are even more troubling passages, some of which should raise a few eyebrows, in light of former Goldman executive Greg Smith's recent public resignation, in which he complained that the firm routinely screwed its own clients and denigrated them (by calling them "Muppets," among other things).

Here, the plaintiff’s motion refers to an “exhibit 96,” which refers to “an email from [Goldman executive] John Masterson that sends nonpublic data concerning customer short positions in Overstock and four other hard-to-borrow stocks to Maverick Capital, a large hedge fund that sells stocks short.”

Read the entire article here
See the court document here