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Today, Goldman Sachs was officially charged by the Securities and Exchange Commission with defrauding investors. The SEC alleges that Goldman let a big hedge fund fill a financial product with risky subprime mortgages and then failed to disclose that to the product's buyers.
Do you think this will just be the beginning of charges filtering through the large companies who marketed and sold CDOs to investors?
Additionally, do you think the charges will hold up in court? Goldman desn't seem to think so in the following statement, "The SEC's charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation."
Any comments on potential ramifications of this and possible future charges?
Also here is a link to an article on the charges:
http://online.wsj.com/article/SB10001424052702303491304575187920845670844.html?mod=WSJ_hpp_LEADNewsCollection
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I feel like it is going to be a tough case to win. Most of what happened wasn't really illegal. Goldman Sachs did not give AAA ratings. Also, consumers making a bad purchase does not make this illegal.
ReplyDeleteIf the SEC does win this case, it could begin a chain reaction of similar suits. Whether or not they would be warranted is debatable. It could be more of looking for a scapegoat kind of deal.
Amidst their 22 page packet that the SEC filed against Goldman Sachs there is much proof through quotes of founded emails that Paulson and Goldman Sach's left ACA out of the loop on purpose to be able to use ACA as an intermediary and sell the low rated securities and bonds planning that their value would go down. They definitely used unethical techniques but like Noah said I don't think they will easily find Goldman Sachs guilty but at least this will scratch their reputation and maybe that will be enough of a consequence. In any case it comes down to what we talked about in class about the definition of fraud and what constitutes as a viable charge. I do not know if they can be charged for their behavior but it certainly should have a negative view from the public. It seems to me that many of these companies were sneaky with their "bets" on making money with mortgage-backed securities but unfortunately we can't charge people and firms for mischief..oh well
ReplyDeleteI am truly surprised that the SEC would make these charges despite how incredibly obvious it seems that they were warranted. The charges set a precedent that I believe will push the SEC to levy charges against many of the biggest players in this crisis which will cost a fortune to litigate.Ultimately, these types of cases almost never come to a conclusion. GS will likely be able to settle for pennies on the dollar without ever having to admit guilt for their alleged wrong doing.
ReplyDeleteIt will be pretty interesting to see how these charges pan out. I agree with Noah in the sense that I think it will be very difficult to find Goldman Sachs guilty of misleading investors but the fact that they are being put under this scrutiny is at least raising some awareness of the greed and perhaps unethical behavior that took place during the financial crisis. I did not know that one of the main sources behind the CDO was also someone who bet against it to achieve the greatest benefits during the crisis. Those facts alone are enough to raise some questions of the integrity of information that was given to investors.
ReplyDeleteAs everyone has also said, it's very unfair that Goldman Sachs decided to engage in such behavior to mislead the buyers. Sure it's the buyer's responsibility to be aware of what they're purchasing, but there should also be some sort of standard of information given by the seller. We were talking about this earlier today in my National Income and Business Cycle class, and what came out of the discussion was that it depends on what "full disclosure of information" really entails, in the buying of these CDO's. Did Goldman Sachs disclose the necessary information, or did they wrongfully and illegally leave parts out?
ReplyDeleteI think that Goldman Sachs will probably get out of this suit because they will say they didn't give out the ratings and its the investors fault that they didn't research and find out all the pertinent information. Even though no one really understood what CDOs where. What they did was unethical but not exactly illegal they just exploited people and their power to their advantage.
ReplyDeleteI agree that they will ultimately come out of this suit alive. If we look at the behavior of a company like Goldman Sachs in recent history, it is obvious they are going to shift blame elsewhere. I agree with Rob in that one good thing stemming from this suit is that it will surface the unethical and immoral behavior practiced by Goldman Sachs. Regardless of the outcome, I am glad to see there is finally some action stirring things up.
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