A Complete List of Goldman Sachs Crimes

Update: New York Investigating CDS Brokers

The SEC and DOJ’s investigations of Goldman Sachs have been big news for a couple of weeks now. We tend not to post right away on stories like that, because we don’t want to be yet another one of those blogs that just tries to jump on the bandwagon, simply repeating news without adding anything of value to the conversation. So we like to wait until we have some analysis to add.

In the Goldman Sachs case, as pretty much everyone reading this is aware by now, the SEC says Goldman created a mortgage-based investment, sold it to investors, and then bet against it by shorting it themselves. They also say Goldman messed up by letting hedge fund manager John Paulson pick some of the assets, despite the fact that his fund was betting heavily against the housing bubble (and ultimately made a killing when it burst). The SEC filed its suit about 2 weeks ago. Then during this past week, they referred it to the DOJ for criminal investigation. The fine folks at the Southern District are now looking into whether any criminal acts took place.

We’re sure the SDNY is going to be a lot more careful than, say, the Eastern District was with the Bear Stearns case. [Full Disclosure: We represented one of the BSAM fund managers in that case, who was ultimately not indicted.] You know, maybe actually reading emails in context, actually figuring out how hedging is supposed to work, stuff like that?

Nevertheless, it’s a tough job. So as a good citizen, unaffiliated with the case in any way, we’d like to make their job easier. We’ve pored over the factual allegations that have been made, and delved into the facts that have been publicly disclosed so far. And after a great deal of legal analysis and number-crunching (yes, we do this for fun), here is a complete list of all criminal activity that we have been able to identify at Goldman Sachs here:


You’re welcome, guys. Hope this helps!

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  1. Administrator, May 1, 2010:

    Or as our friend Steven Klein posted on Facebook when the news broke:

    “Bad market maker! Bad bad market marker! Bad market marker for . . . well. . . making markets.”

    (Too good not to share. We wish we’d thought of it ourselves.)

  2. Comment from a Facebook friend, May 1, 2010:

    Anyone who knows about markets realizes this is totally legal. This is a case of the politicians needing to look tough against Wall St. for their constituancy. Unfortunately Main st looses again. This time it’s the politician dog and pony show.

    An analysis of the AZ immigration bill would be interesting….

  3. Steve Feldman, May 1, 2010:

    Nathan, my friend, I disagree with your description of the conduct at issue here. The SEC doesn’t allege that “Goldman messed up by letting hedge fund manager John Paulson pick some of the assets…” The SEC alleges that Goldman mislead investors concerning who selected the assets. Goldman could have let a janitor select the assets with a magic 8-ball, and the SEC wouldn’t care as long as Goldman truthfully that to the investors. It is all about the disclosure or lack thereof — that’s what 10(b)-5 is about.

  4. Comment from a Facebook friend, May 1, 2010:

    That’s incorrect. This isn’t about markets, it is about disclosure. I have no idea whether Goldman truthfully and completely disclosed the material facts about the deal to the investors. If it did, then the SEC has no case. If it did not, then it may have exposure under 10b-5. Certainly, the SEC thinks it has a good faith argument of a 10b-5 violation or there would be no civil charges.

  5. Comment from a Facebook friend, May 2, 2010:

    Of course they did. Both parties know exactly what’s in the security. That’s part of the prospectice… Look at any mutual fund…

  6. Comment from a Facebook friend, May 2, 2010:

    On a side note: even fareed zakaria (who is a real leftie) came out in favor of Goldman in this weeks newsweek….

  7. Nathan, May 2, 2010:

    SEC civil charges are a whole different animal from what has to be proven in a criminal prosecution. It’s pretty easy to conceive of a SEC violation in a case like this that still wouldn’t be an indictable offense.

  8. Comment from a Facebook Friend, May 2, 2010:

    The fact that there is a prospectus does not mean that the information contained therein is complete or accurate. I prosecuted a number of private placement frauds that provided a detailed prospectus to investors. However, the information contained in the prospectus was false and misleading. That’s securities fraud.

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