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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

Wednesday, April 10, 2013

Goldman Sachs Looks for Unsophisticated Clients

On September 8, 2010, Goldman Sachs partnered with Incapital LLC to "distribute a broad range of municipal offerings underwritten by Goldman Sachs."

"John Radtke , President of Incapital, said, 'Our alliance with Goldman Sachs will give financial advisors at banks, RIAs and broker-dealers access to a wide spectrum of new issue municipal securities which previously have been difficult to access. We feel this will broaden the appeal of a very attractive asset class and provide greater diversification in distribution for municipal issuers.'

" 'We are pleased to be able to expand the number and types of investors accessed by our issuing clients through our relationship with Incapital, a recognized leader in distributing fixed income products.  Its distribution network perfectly complements our proven institutional sales capability as well as our extensive high net-worth private wealth management efforts,' said Jeff Scruggs , Co-Chief Operating Officer of Goldman Sachs' Public Sector and Infrastructure banking group."

We know from Greg Smith's book that Goldman would often find the unsophisticated investor such as a municipality to offer bonds to them.  We learn how the municipalities of Oakland and Reno felt about their dealings with Goldman Sachs on this basis--they came out of their deals worse off than they would have been if they had not dealt with Goldman at all.

Now the SEC is reporting on an investigation into Goldman Sachs (and other banks) trying to skirt Dodd-Frank rules about banks giving financial advice to municipalites and underwriting bond transactions.  One such transaction concerns the municipality of St. Louis.

Goldman claims it gives advice and then distances itself from any fiduciary duty for that advice.  In other words, Goldman pretends not to give advice on the monetary aspects of any bond deal.
Report:  SEC Probing Goldman, Banks on Municipal Deals

The Securities and Exchange Commission is reportedly investigating whether Goldman Sachs (GS) and other banks are skirting post-crisis “role switching” rules aimed at preventing banks from giving biased investment advice to municipalities.

According to The Wall Street Journal, regulators are probing whether banks have run afoul of Dodd-Frank regulations that prohibit banks that provide financial advice to municipalities from underwriting certain municipal bond transactions.

The new rules have sought to minimize incidents where less sophisticated municipalities are lured into risky bond deals.

Read the whole article here


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