(Cross-posted from The Free Speech Zone)
Government allegations that financial giant Goldman Sachs defrauded investors are creating a political storm, with some lawmakers hoping that the civil lawsuit filed Friday by the Securities and Exchange Commission is just the beginning.
As the heat increases on the investment bank, which has denied all wrongdoing, Politico reports that they have hired Greg Craig for legal help. Craig formerly worked as the top lawyer for President Barack Obama and left the White House earlier this year to join the law firm Skadden, Arps.
The executive order Obama signed the day after he was inaugurated bars high-level executive branch appointees who leave the administration, like Craig, from communicating with their former employers. That executive order also prohibits such officials from lobbying the federal government during the remainder of the Obama administration.
The Politico article notes that since the SEC is an independent government agency, it would not coordinate with the White House on enforcement matters, such as the pending lawsuit targeting Goldman Sachs.
The article goes on to quote a source familiar with Goldman Sachs as saying Craig was hired for his ability to give advice and his “deep understanding of the legal process and the world of Washington.”
The U.S. government is not the only authority interested in further probing Goldman Sachs.
The British and German government have also raised the possibility of investigations. And on Capitol Hill, Democrats in the House and Senate are calling for more answers.
Of all the articles I read on this, this Capital Eye Blog article has to be the best one.
Well, the one that gave me the biggest fucking hard-on in my life that is…..
So what about us skeptics? Those of us who don’t think much will come of this? Sure I hope that what is being said is all true, and it is from what i’ve seen, but will anything come of it?
Let’s look at the Financial Reform Bill then, shall we?
There is some good stuff in the bill, but it is riddled with loopholes. Far more important than the actual bill is the effort to actually enforce existing laws. While it is true that the near-complete absence of a regulatory structure to oversee derivatives trading is problematic, there is a lot the government could have done still, if it had wanted to, to prevent catastrophes like AIG and Lehman Brothers. The decision to take a whack at Goldman for this Paulson business is therefore the best news there’s been on this front…
My thoughts exactly. A mixture of “too little too late” and “well it’s better than nothing” but I still reserve judgement on all this until all these douchebags are in a cell 23/7.
I, personally, would of gone into all the Wall Street firms “American Psycho” style to take care of those scumfucks:
But hey, a reform on regulations….yay!
That way there’s more tools to regulate!
Because, you know, the SEC enforces the ones they already have so well:
The court-appointed examiner for Lehman Brothers Holdings Inc. told a Congressional committee Tuesday that the Federal Reserve lacked the authority and the Securities and Exchange Commission lacked the skills to oversee the now-bankrupt financial institution.
The House Financial Services Committee held the hearing in the wake of last month’s report from Anton Valukas, Lehman’s examiner, which described controversial accounting tactics employed by Lehman.
The SEC was Lehman’s primary regulator, Valukas testified, but “no agency…effectively compelled Lehman to alter its conduct.”
Lehman’s use of an accounting scheme called Repo 105 has drawn particular ire from the institution’s critics, who say it was nothing more than a tactic used to manipulate its balance sheet and hide Lehman’s use of leverage, or borrowed money, as early as 2007.
“Although Repo 105 transactions may not have been inherently improper, there is a colorable claim that their sole function as employed by Lehman was balance sheet manipulation,” Valukas reported last month. “Lehman’s own accounting personnel described Repo 105 transactions as an ‘accounting gimmick’ and a ‘lazy way of managing the balance sheet as opposed to legitimately meeting balance sheet targets at quarter end.'”
But on Tuesday, Valukas directed the bulk of his criticism at Lehman’s regulators, who were portrayed as being asleep at the wheel. He said the SEC collected information on Lehman but failed to take adequate action and didn’t ask the right questions about the balance sheet transactions. He also said the SEC and Fed failed to share information on Lehman adequately.
Well, at least Goldman Sachs is gonna get theirs!
And now that they’re getting theirs, others start finding out how they got roped into this clusterfuck balls-deep:
Friday, as news of the allegations of fraud at Goldman Sachs spread, I got a call from someone who works in the insurance business.
“Check out the former head of ACA” he said referring to the now-defunct and formerly down-graded bond insurer who asked the-not-so-omniscient hedge fund manager John Paulson to choose which securities to put into the CDO, Abacus, that Goldman Sachs subsequently sold to two big clients, the German bank IKB and the Royal Bank of Scotland — without disclosing that Paulson would be shorting his own hand-picked stocks on the other side of the trade.
Now the SEC’s complaint states that ACA had no idea that Paulson was shorting the stocks he’d been asked to select, yet my deepthroat was not so convinced.
“ACA had a horrible reputation,” he told me, which led me to ask the obvious question so why would Goldman want ACA’s stamp as selection manager on the CDO they were marketing? Fabrice Tourre, the 31-year-old named as the architect of Abacus, is quoted as insisting that Goldman wanted ACA’s brand name and “credibility” on the CDO.
My source told me to check out who the head of ACA was married to. “I think you’ll find it’s a senior woman at Goldman Sachs,” he said.
Well, yep, it is.
Alan S. Rosenman took over ACA Capital as president and CEO in 2004 – because — wait for it — his predecessor Michael Satz had “personal income tax issues” — (how murky is this story going to get you must be asking?)
According to a Business Week article dated April 3 by David Henry and Matthew Goldstein, Rosenman “immediately began to push ACA into CDO insurance, an area his predecessor, Satz, had only begun to explore.”
Rosenman’s wife, or at least partner — they are listed as sharing a house together for which they paid $6.1 million in 2005 in New York — is Frances “Fran” R. Bermanzohn, who is managing director and deputy general counsel at … Goldman Sachs.
Better than getting “thrown to the wolves” I guess. One can only hope they snitch on the Goldman Fuchs group!
Which brings us to how this possibly all got started.
“Kick Their Ass C-BASS!”
There’s a saying, and it is relevant to start this portion of the post, and that is “Hell hath no fury like a woman’s scorn”.
Some terrific investigative reporting by Matt Goldstein at Reuters discloses that while Lloyd Blankfein is aggressively defending Tourre, claiming the Frenchman did nothing wrong despite earlier reports that he was deregistered by the FSA, and the Telegraph now chiming in he has now in fact been barred in a major setback for Goldman’s defense, another Goldman employee who was part of the 18-month SEC investigation, mysteriously departed in June of 2009.
The person in question: Gail Kreitman, a 1991 Wharton grad, who had previously worked at Merrill (1997-2003) and Lehman (2003-2006) according to her Finra records, before finally landing at Goldman for a three year stint as a “GS&Co. Sales Rep.” Gail had been identified previously in the initial Goldman Wells response, and was named as a person whose sworn testimony may have been the catalyst for the SEC’s case against Goldman Sachs. Where the plot really thickens is a cursory glance at the bio of her husband, Jeffrey Toll, who according to Bloomberg is a Co-Founder of now-defunct C-BASS (Credit-Based Asset Servicing and Securitization) a company formed with initial funding by mortgage insurers MTIG and Radian. For those unfamiliar, “C-BASS was a leading issuer, servicer, and investor specializing in credit-sensitive residential mortgage assets. These assets included performing subprime and Alt A, nonperforming, reperforming, second lien and small commercial loans, as well as subordinated and mezzanine RMBS with prime, subprime, Alt A and high LTV collateral” and that “It currently is liquidating its existing portfolio and returning the cash proceeds received to its lenders and investors.”
One wonders just what Ms. Kreitman did to merit the severance of her ties with Goldman, and whether C-BASS was in any way involved, or whether it had any dealings with Goldman’s now infamous mortgage group, ala ACA?
Word on the street is C-BASS was the subject of the SEC request. Did they snitch when the Feds came sniffin’ around?
“I swear Officer! It’s not my mortgage securities! I’M JUST HOLDING IT FOR A FRIEND!!!!!”
Yeah well…this is, well, this is where it gets really fucking sweet…
Gail Kreitman, the former Goldman bond saleswoman, is not named as a defendant in the Securities and Exchange Commission’s lawsuit against Goldman and another of the investment firm’s bond salesmen, Fabrice Tourre. Kreitman is not even identified by name in the complaint.
But Kreitman, who left Goldman in June 2009, was interviewed by securities regulators during the course of their 18-month investigation, and some of her email communications are cited by the SEC in the 22-page complaint.
The SEC points to some of Kreitman’s emails as part of its claim that Goldman and Tourre misled ACA Capital Management, the outside manager tapped to oversee the transaction, about hedge fund giant Paulson & Co’s economic interest in the deal.
Kreitman is not identified by name in the emails cited in the complaint. The SEC refers to her simply as a “GS&Co. sales representative.”
But in a lengthy legal filing submitted to the SEC last September, lawyers for Goldman Sachs try to explain away the emails between Kreitman and ACA executive Laura Schwartz. Goldman’s attorneys contend that Kreitman did not intend to give ACA officials the impression that the hedge fund was either an equity investor or “long” on the deal.
“The fact that Ms. Kreitman did not correct Ms. Schwartz’s statements that Paulson was an equity investor does not indicate that she attempted to conceal the truth from ACA,” said lawyers from the New York firm Sullivan & Cromwell, Goldman’s outside counsel.
Goldman’s outside lawyers in the filing downplayed Kreitman’s role in engineering the so-called synthetic collateralized debt obligation called Abacus 2007-AC1. The lawyers said Kreitman was merely an “intermediary” whose main job was to “manage the relationship for ACA.”
The Goldman lawyers even suggest Kreitman, who previously worked at Lehman Brothers and Merrill Lynch before coming to Goldman in 2006, may not have “understood the significance of Ms. Schwartz’s statements suggesting she believed Paulson to be an equity investor.”
Yeah, that’ll do it.
Not a lot you can do to get fired as an executive at Goldman Sachs, but snitching to the SEC?
So she goes from “ballin’ exec” to “snitch bitch” when the Feds bring tha heat and we got ourselves an SEC lawsuit!