Viniar made no mention of Goldman's short bets or the $266 million gain. Instead, he said the market had seen "a little bit of nervousness" but the housing weakness had been "so far largely contained.
The did not disclose material analysis that they where using to hedge the company against mortgage backed securities and explaining to analyst and clients that the losses where "so far largely contained". That is cut and dry fraud. They knew it was not contained and that is why the where bailing as fast as possible.
You are confusing Goldman's prop desk and their sales desk. The prop desk is not required to inform clients of their positions.
The sales desk is required to disclose information on the composition of the security they are selling. I.e.: "Bond X is comprised of 523 loans from Florida, 247 loans from Texas, etc, all rated AAA".
Your link does not suggest they failed to do this.
In much the same way, if I think AAPL will tank, I am legally permitted to sell my shares.
I am not confused about anything they where fined for civil fraud. They should have been charged with criminal fraud because they where culpable in allowing the racket to be structured.
Tourre structured the transaction, prepared the marketing materials, and communicated directly with investors. Tourre allegedly knew of Paulson & Co.'s undisclosed short interest and role in the collateral selection process.
Goldman Sachs did not disclose Paulson & Co.'s short position or its role in the collateral selection process in the term sheet, flip book, offering memorandum, or other marketing materials provided to investors.
You are actually very confused. Your previous link asserted that Goldman shorted bonds which were about to tank, and this was fraud. (It isn't.)
Your current link claims Goldman defrauded themselves (for the benefit of Paulson and others) on a bond they took a long position on. Also, Goldman wasn't fined for fraud. Goldman paid the SEC to make the case go away, while admitting no guilt.
Fined settled your playing semantics, both articles where to show that their was material deception of investors taking place by Goldman. A case was brought against Goldman and Goldman had to pay an amount for fraud. Their is no confusion, they defrauded investors, failed to disclose their dealing at the back of the house and this is illegal. Both articles show that they engaged in it and the latter shows with no doubt that it is illegal to do so. You asked What did they fail to disclose and I provided you with references to show you what they failed to disclose. No confusion, we can argue in circles if you don't like the facts but there they are in black and white. The porn scandal is irrelevant to whether or not Goldman committed fraud.
Specifically from the first article, where the fraud was mentioned:
However, Goldman's limited disclosures in the offering circulars it gave the investors that bought its mortgage securities could cause legal problems.
At issue is whether Goldman's bets against the housing market were so "material," or relevant to investors, that their disclosures could have convinced them not to buy its products. Without purchasers for its risky securities, Goldman's exit strategy would have flopped.
No, the first article shows Goldman engaged in prop trading. That's not a crime, or fraud. That's what every single person in the financial markets does - they sell stuff to other people when they expect it to go down, and buy stuff from other people when they expect it to go up. Are you guilty of fraud if you sell AAPL before it goes down?
The second article showed Goldman didn't disclose something that no one has even been forced to disclose before (identity/motives of the counterparty). In fact, it's often illegal to disclose this. They did disclose the exact composition of the product they sold (and bought for themselves), and by the nature of a synthetic CDO, there was always someone betting against the bonds going into it.
But I'm really curious - can you explain to me why Goldman would defraud themselves? Remember, Goldman bought a piece of ABACUS and lost money on the deal as a result. Why would they buy a bond they knew was designed to fail?
The Stanford scandal and the Porn scandal are relevant to the SEC's motives - just by pure coincidence, they hit an unpopular company ("giant vampire squid") with a really weak case, alleging the company defrauded themselves, at the exact time they were about to get a bunch of negative media attention. I'm sure the two were completely unrelated.
As for fined/settled, it's not semantics. If the SEC had a solid case, they would have demanded Goldman admit guilt. Goldman just paid a bunch of money to get their name out of the media and avoid uncertainty.
It is fraud to materially represent information to clients. That is why Goldie got nailed. The rest of the stuff you are pointing out is a bunch of noise that is pretending to be signal.
For those who don't know the details of the case, heres a quick read -
1) A hedge fund which believed that mortgages were going to go south worked with Goldie to buy a portfolio of stocks which they were short on. They would make money if the stocks tanked.
2) Goldman turned around and sold the Long end of the trade to their clients.
3) Goldman is asked specifically by clients if a neutral third party was making the portfolio. CRITICAL information to a decision maker.
4) Goldman LIES and states that it was a neutral third party.
Watch this video - its the SEC enforcement directory talking about why they were going after Goldman. Do note this was at a time people were making the same assertions that yummyfajitas is making - its wrong illegal to disclose the identity/motives of the counterparty.
I'm going to steal a comment from that page -
"In response to the typical question as to “weren’t the investors sophisticated enough to do their due diligence and see for themselves that bla bla bla” Khuzami ( at 3:12 min) revealed a critical detail: “One of the investors specifically requested an independent and objective 3rd party collateral manager to assist in the selection of the portfolio. It was a foreign institution that wanted someone here is the US. It was one of the condition of the deal, and Goldman represented that is was what they were getting, when in fact, it was not the case.”
The subsequent ruling makes it clear that this is material information that is necessary to disclose when dealing with derivatives and CDOs. Do also note that till date derivatives and CDOs are the least regulated part of the entire market and that is why they are also weapons of mass destruction. Getting a legal case which makes it clear that you have to disclose stuff like this is BIG.
Whats really irksome is that the matter at hand is far more complicated and important to understand, yet the coverage of this matter is handled badly.
Funnier still - after the water is muddied it is made to look as if the SEC is forcing "Virtuous Bulwarks of Society TM" to disclose information that a 2 year old should know.
WTF? People talk about the SEC going after Goldie like its a BAD THING. I just can not understand this.
There is a LOT of depth complexity to what is going on here. The porno scandal is a distraction. The Rolling Stones article, and the parents link, do not even begin to touch the surface of these issues.
