Goldman not admitting fraud. I think I know why.

[metapunditedgy]

I was recently in an unrelated financial case where regulators got involved, and learned a bit.

Corporations typically provide "limited liability" to their officers. Basically, the officers can't be held liable for anything *unless* fraud is found.

If there is fraud, then you can start talking about holding real people responsible and putting them in jail.

But in "business as usual" America, the "titans of industry" obviously can get away with whatever they want. $500M is not even pocket change for Goldman; it's like the fuzzy lint at the bottom of their pockets.

[msongs]

1. yeah but corporations are people now, every worker can be put in jail same time nt

[dkf]

2. There is still a case against Tourre.

Goldman as an institution is not in danger of being prosecuted for fraud but not the individual known as the Fabulous Fab. His case is still pending.

[metapunditedgy]

3. Yeah, but isn't the SEC done with Goldman now, and they're not alleging fraud.

If the SEC had the guts to call "fraud" when everyone knows it is, then the remaining cases have to argue uphill. (*Somebody* committed the fraud.)

SEC caving on this is a win for everyone on the Goldman side.

[dkf]

4. That is just on this one CDO. Who knows how many others were misrepresented.

I would think there are still numerous incidences and firms to review.

[metapunditedgy]

5. There is this cryptic sentence from the NYT:

Though Goldman said that it understood the S.E.C. was not planning to bring other cases, the commission continues to investigate collateralized debt obligations, like the Abacus security, issued by Goldman and other banks, and could still take action.

http://www.nytimes.com/2010/07/16/business/16goldman.html

And there's this choice quote:

“You have to consider the symbolism of the S.E.C.’s case. When it was filed back in April, it completely changed the dynamic on Capitol Hill."

Goldman profits obscenely from fraud, but at least we got some "symbols" and "dynamics" out of the deal.

Even though Tourre was left out of this deal, it's still pretty clear that it's a win for him (and any other fall guys Goldman may choose to cough up). Government regulators have a lot of power to dig out information (as I found in the case I was involved in). Now it seems that the SEC will not be helping to uncover any fraud.

I'll stop now before I start ranting against the SEC.

[dkf]

6. Is it a win for Tourre?

Most firms aren't hit by criminal fraud charges when a crooked employee gets prosecuted. A jail sentence for Tourre might send a better signal to individual banksters than a suit against the firm.

[metapunditedgy]

7. The problem is systemic. Tourre was stupid enough to brag over emails.

A large number of people were involved. Tourre is the fall guy. His case will proceed whatever happens, but the SEC isn't pushing fraud charges, which would have been really bad for him. Do you see it differently?

If I were a bankster, the take-away lesson for me would be not to brag over email and to make sure I've burrowed in enough to be in the 99% that are protected by the corporation so I don't become a fall guy.

Do you see it differently? How does this change "business as usual?"

I'm glad the SEC did something, but it's very hard to see how this is a positive for "main street."

[dkf]

9. He bragged that he sold crap to widows and orphans.

When does it become fraud?

[metapunditedgy]

13. Not sure I understand your question, so I'll interpret it this way...

The problem is that a lot of the fraud was committed at the corporate level, and was distributed around multiple people. (Or so I reasonably assume.)

Now that the SEC is done with all of that, we're left with the investigation of this sad little Tourre guy.

So yeah, what does one sad little idiot have to do with all the fraud that really occurred?

FWIW, Apparently the legal working definition of fraud is:
Fraud must be proved by showing that the defendant's actions involved five separate elements: (1) a false statement of a material fact,(2) knowledge on the part of the defendant that the statement is untrue, (3) intent on the part of the defendant to deceive the alleged victim, (4) justifiable reliance by the alleged victim on the statement, and (5) injury to the alleged victim as a result.

http://legal-dictionary.thefreedictionary.com/fraud

[Spazito]

10. No, it is stated clearly...

"It does not settle any other past, current or future SEC investigations against the firm. Meanwhile, the SEC’s litigation continues against Fabrice Tourre, a vice president at Goldman."

[metapunditedgy]

11. Yeah, I didn't mean to imply that the SEC will never investigate Goldman again.

But this was the big, high-profile case.

Are there any other major cases I don't know about?

[Spazito]

12. There may well be...

the settlement doesn't preclude, in any way, any civil or criminal charges being laid against employees of GS, we do know that.

[Hannah Bell]

14. and as i understand it, they can deduct the damages from their taxes. correct me if i'm wrong.

no crime, so cost of doing business.

[metapunditedgy]

15. I don't know, but a search indicates that they cannot deduct the settlement.

Here's the first link that popped up:


The SEC filed a lawsuit in April alleging that Goldman misled investors with a subprime mortgage product as the housing market was declining. Goldman is prohibited from deducting the settlement from its taxes, SEC officials confirmed.

http://thehill.com/blogs/on-the-money/corporate-governance/109105-goldman-sachs-strikes-settlement-with-sec

[Hannah Bell]

16. They paid that much in bonuses last year. BFD.

In April, Goldman said it would set aside half of its £1.2bn first-quarter profit to reward staff, much of it in bonuses. It is believed to have paid 973 bankers $1m or more last year, while this year's payouts are on track to be the highest for most of the bank's 28,000 staff, including about 5,400 in London.

http://www.guardian.co.uk/business/2009/jun/21/goldman-sachs-bonus-payments

[PufPuf23]

8. Agree the problem is systematic and unfortunately the financial reform

is not a fix.

There is plausible deniability by management because of the nature of the technolgy.

There are scapegoats to be found but the paste is out of the tube.

[Hannah Bell]

17. sounds like a good guess. $500M was last year's bonuses. Big whoop.

They gave out that in bonuses & still had another $500M left in profits.

[Blackhatjack]

18. Heard it reported Goldman made $12bil and paid $500mil to walk away from fraud charges...

.... nice work, but only if you are a WallStreeter or Oiler.

[metapunditedgy]

19. Do you have a reference for the $12B number? If true, the lesson to every kid in the country

is "Crime DOES pay."

[Octafish]

20. BINGO!!!

With no oversight, there is no lawbreaking and, thus, there is no fraud. So, no problem.

Otherwise, there'd be criminal trials and respectable people would have their names dragged through the mud, similar frauds at other companies would have to be prosecuted -- THE CORRUPTION IS SYSTEMIC -- and precious minds would be blown.