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Showing posts with label Securities Fraud. Show all posts
Showing posts with label Securities Fraud. Show all posts
Wednesday, May 23, 2012
Friday, May 13, 2011
Preet Bharara: Wall Street's Biggest Enemy! Obama Appointee
Under George W. Bush's Administration Insider Trading & Securities Fraud Peaked (i.e., Bernie Madoff Among Others).
Due To The Republican Party's Bitter Revulsion Of Regulation & In Exchange For Fat Campaign Checks, GOP Lawmakers Turned A Blind Eye & Deaf Ear To Corporate/ Financial Crimes.
Then Comes The Nov. 2008 Election Which Ushers In Pres. Obama!
He Comes In Smiling Like A Subservient Lamb, Fooling Everyone!
This Smiling, Shrewd, "Subservient" Lamb Delivers A Powerful Blow To Wall Street By Appointing U.S. Attorney Preet Bharara To The Manhattan Office.
Mr. Bharara Is Now Wall Street's Biggest ENEMY!
Ha Ha Ha!
CAUTION:
I Strongly Advise Mr. Bharara To Watch His Back!
Former NY Governor Eliot Spitzer Once Went After Wall Street's Crooks And Look What Happened To Him.
Let Me Be Clear Despite My Disagreements With Pres. Obama's Administration In The Past On Some Issues, I Am Without A Doubt, Boldly Endorsing Pres. Barack Obama For Re-election In 2012!
Its NOT Unusual For A Politician's Constituents To Disagree With Them On Certain Issues Because Human Beings Are Individuals.
However At The End of The Day Its About Who's STILL Standing By Their Side.
I Stand By Pres. Obama's Side!
Visit msnbc.com for breaking news, world news, and news about the economy
U.S. Attorney Sends a Message to Wall Street
Every few days during the trial of Raj Rajaratnam, the Galleon Group’s co-founder, Preet Bharara, the United States attorney for the Southern District of New York, would quietly enter the courtroom and take a seat in the last row of the gallery.
From that unassuming vantage point, Mr. Bharara watched his colleagues try to persuade a jury to convict the former hedge fund titan of securities fraud and conspiracy.
The consistent presence of Mr. Bharara at the largest insider trading case in a generation — and the office’s resounding victory on Wednesday — signaled that the chief federal prosecutor in Manhattan was back as the sheriff of Wall Street.
Over the last decade, the New York attorney general, federal prosecutors in Brooklyn, the Manhattan district attorney and even the Justice Department in Washington angled for their share of financial fraud cases, an area traditionally dominated by the Southern District. For example, Eliot Spitzer grabbed headlines when he was New York attorney general by focusing on malfeasance at investment banks.
But Mr. Bharara has not-so-quietly reaffirmed his office’s leading role in pursuing corporate crime with this landmark insider trading case, which relied on aggressive prosecutorial methods and unprecedented tactics. For the first time, federal authorities used wiretaps to listen in on stock traders swapping illegal tips.
“What this case has done,” said Neil M. Barofsky, a former Southern District prosecutor who recently served as the special inspector general for the government’s Troubled Asset Relief Program, “goes well beyond simply putting a billionaire hedge fund manager behind bars.”
“The case will impact an entire industry,” Mr. Barofsky said. He said that Mr. Bharara “did more than just oversee and support the prosecution — he made sure that the target audience, traders on Wall Street, fully understood the extraordinary lengths that his office will go to discover these crimes, and that justice will be served.”
It has been 21 months since Mr. Bharara, 42, was appointed United States attorney by President Obama.
In that short tenure, his staff has ventured far beyond Wall Street, prosecuting some of the nation’s — and the world’s — most prominent defendants. Among them: Faisal Shahzad in the Times Square bomb plot; agents in a Russian spy ring; Ahmed Khalfan Ghailani, the first Guantánamo Bay detainee to be tried in the civilian system; Viktor Bout, a Russian accused of being an arms trafficker; a Somali man charged with piracy; and four men charged in a plot to bomb synagogues in the Bronx.
Not every case has gone smoothly. In Mr. Ghailani’s trial, the jury acquitted him of more than 280 counts of murder and conspiracy and convicting him of a single count of conspiracy to destroy government buildings and property. Nonetheless, Mr. Ghailani received a life sentence.
Some academics and newspaper columnists have also criticized Mr. Bharara for not filing criminal charges against senior executives at the center of the financial crisis. Last week, when his office filed a civil mortgage-fraud lawsuit against Deutsche Bank, he said there was not enough evidence to justify a criminal complaint.
Mr. Bharara was an infant in 1970 when he came to the United States from India with his parents. He grew up in Eatontown, N.J., and earned degrees from Harvard and Columbia Law School.
After several years in private practice, including a stint at Gibson Dunn & Crutcher in New York, Mr. Bharara became a federal prosecutor in Manhattan, handling organized crime, narcotics and securities fraud cases. In 2005, he became chief counsel to Senator Charles E. Schumer of New York, leading a Congressional inquiry into the firings of United States attorneys.
Some lawyers have wondered aloud whether Mr. Bharara may have political aspirations like his predecessors, including former New York Mayor Rudolph W. Giuliani, who filled the post in the 1980s. As with Mr. Giuliani, Mr. Bharara is a charismatic figure who is comfortable in front of cameras, can talk tough and has a knack for the witty sound bite. At a news conference announcing Mr. Rajaratnam’s arrest, Mr. Bharara riffed off a famous line from the movie “Wall Street.”
“Greed, sometimes, is not good,” he said.
Unlike Mr. Giuliani, whose political ambitions seemed barely hidden while he led the prosecutor’s office, Mr. Bharara has told friends he has no interest in elected office.
“Everything about Preet’s record suggests that he’s a federal prosecutor for all the right reasons,” said Randy Mastro, a lawyer at Gibson Dunn and a former top deputy under Mayor Giuliani. “The best prosecutors are often those who don’t have political ambitions.”
Mr. Mastro, who overlapped for a time with Mr. Bharara at Gibson Dunn, added, “But that doesn’t mean he shouldn’t be drafted into running.”
Ellen Davis, Mr. Bharara’s spokeswoman, said in a statement on Thursday: “Preet loves his job and has no desire to run for public office now or ever.”
Mr. Bharara has not commented publicly on the Rajaratnam verdict, other than a short statement in a news release. But in a series of speeches, he has explained his aggressive approach to corporate crime.
“When sophisticated business people begin to adopt the methods of common criminals, we have no choice but to treat them as such,” Mr. Bharara said weeks after revealing the use of wiretaps in building a case against Mr. Rajaratnam. “To use tough tactics in these circumstances is not being heavy-handed; it is being even-handed.”
He has taken that approach in other areas of financial crime.
His office secured convictions in two high-profile criminal cases against bank executives accused of stealing proprietary computer code related to high-frequency trading businesses, including a case against a former programmer at Goldman Sachs. More recently, Mr. Bharara’s prosecutors charged the operators of three popular online poker sites with fraud and money laundering.
And Mr. Bharara continues to pursue insider trading cases. Over the last 18 months, his office has charged 47 individuals with insider trading crimes, 36 of whom have pleaded guilty or been convicted. At a recent news conference, he indicated there was more to come.
“I wish I could say we were just about finished, but sadly we are not.”
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Sources: MSNBC, NY Times, Russia Today, Wikipedia, Youtube, Google Maps
Thursday, December 2, 2010
Bank Of America Prepares For Assange's Wikileaks Attack
Bank of America Executive: We're Preparing For Wikileaks
A senior Bank of America executive Wednesday suggested the company is prepared to deal with a possible release of internal documents by WikiLeaks in part because the bank has been through similar public disclosures before.
Anne Finucane, head of global strategy and marketing for Charlotte-based Bank of America, said in a speech in Boston that the company has already endured grueling government investigations that resulted in the public release of executives' e-mails and other internal documents.
"I don't think there's a company that has had more leaks, more of our information provided to congressional hearings, attorneys general ... etc.," said Finucane, referring to investigations by Congress and regulators over its controversial acquisition of failing investment bank Merrill Lynch in January 2009.
"We have been out there pretty much 24-7, whether those of us who run communications like it or not, and we have learned not only to react, but deal with this as a given," she added.
Among the material that came out during a congressional investigation of Bank of America's Merrill acquisition was an e-mail one bank director wrote to another director about the company's decision to slash its dividend: "Unfortunately, it's screw the shareholders!!" Another note by the same director suggested the company was forced by the government to complete the Merrill deal.
In February, Bank of America agreed to settle a separate investigation with the U.S. Securities and Exchange Commission that it failed to properly disclose to investors the size of losses at Merrill Lynch, as well as bonuses Merrill employees would be receiving. The company agreed to pay $150 million and strengthen its corporate governance and disclosure practices.
Finucane spoke Wednesday before a women's networking breakfast sponsored by the Greater Boston Chamber of Commerce. She made only a fleeting reference to the brewing controversy with WikiLeaks and spoke mainly about how Bank of America tried to respond to the financial crisis, as well as of her own career path to one of the top jobs in the nation's largest bank.
WikiLeaks founder Julian Assange told Forbes magazine last month that the nonprofit group, which released a huge cache of sensitive U.S. diplomatic correspondence this week, plans to release thousands of documents from a major U.S. bank early next year, spurring speculation that Bank of America could be the target.
Assange did not identify the bank. But in a separate interview 13 months ago, Assange told Computerworld magazine that his organization had obtained a five-gigabyte hard drive from an unidentified Bank of America executive. Still, Bank of America said it has no contact with WikiLeaks and is unable to verify the assertion that WikiLeaks has an employee's hard drive.
"We can assume it's us, but we don't know it's us, because we've had no further evidence beyond what we have read and heard," Finucane said.
Finucane is the only member of Bank of America's senior executive committee based in Boston. Chief executive Brian Moynihan lives in Massachusetts, but is officially based in Charlotte.
Finucane's responsibilities include overseeing Bank of America's vast philanthropic efforts. In her speech Wednesday, she said Bank of America has several priorities for its charitable giving: economic development, cultural institutions, and social services. For instance, Finucane noted the bank recently donated $10 million to the Museum of Fine Arts in Boston, which just opened a new wing to public acclaim.
Overall, Bank of America has said it plans to give away about $12 million by the end of this year to nonprofit organizations and other groups in Massachusetts, up from $9 million a year six years ago when it acquired FleetBoston, then New England's largest bank.
"Happily, we have been able to increase our community relations and philanthropy over the last several years," Finucane said.
Exclusive: WikiLeaks Will Unveil Major Bank Scandal
First WikiLeaks spilled the guts of government.
Next up: The private sector, starting with one major American bank.
In an exclusive interview earlier this month, WikiLeaks founder Julian Assange told Forbes that his whistleblower site will release tens of thousands of documents from a major U.S. financial firm in early 2011. Assange wouldn’t say exactly what date, what bank, or what documents, but he compared the coming release to the emails that emerged in the Enron trial, a comprehensive look at a corporation’s bad behavior.
Read on....“WikiLeaks’ Julian Assange Wants To Spill Your Corporate Secrets”.
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Sources: Boston.com, CNBC, Emirates247, Forbes.com, Life.com, McClatchy Newspapers, Young Turks, WCNC, Wikipedia, Youtube, Google Maps
Friday, May 7, 2010
Goldman Sachs & SEC In Settlement Talks; Silver Lining?
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Visit msnbc.com for breaking news, world news, and news about the economy
Goldman & SEC Reportedly Talking Settlement
Goldman Sachs Group Inc.'s lawyers are in talks with representatives of the U.S. Securities and Exchange Commission to settle the fraud charges brought against it by the regulator, the Wall Street Journal said, citing people familiar with the situation.
Goldman's co-general counsel Gregory Palm, along with other lawyers and SEC officials participated in the preliminary discussion, the paper said, adding that the talks did not include any terms, such as the amount of fine or agreements Goldman could make with the agency.
On Friday, Goldman Sachs Group Chief Executive Officer Lloyd Blankfein called for the besieged company to undertake a "rigorous self-examination" at the annual shareholder meeting.
"There is no bigger priority for our board of directors and management than to undertake a comprehensive review of all of our business practices," Blankfein told shareholders.
Goldman will establish a business standards committee that will report suggestions to management on standards and transparency, he said.
The committee, which Blankfein first broached during U.S. Senate hearings last week but explained in more detail on Friday, is the latest sign that Goldman is responding to the concerns of regulators and the public backlash facing the firm.
Goldman, Wall Street's dominant investment bank, is facing fraud charges from the SEC, which has accused the bank of failing to tell investors that the securities underlying risky debt tied to subprime mortgages were chosen by a short-seller, John Paulson, whose fund was betting the securities would lose value.
Goldman has drawn the attention of a Senate subcommittee and is facing shareholder lawsuits. It also is facing a Justice Department criminal investigation, sources previously told Reuters.
Silver lining?
Blankfein, who testified before a U.S. Senate subcommittee last week, said Friday that it "was not the most comfortable moment in my life."
Blankfein said lawmakers in Washington asked that Goldman return to help assess the impact of financial regulation. Goldman has a "duty" to explain the ramifications, he said.
For the past year, Goldman has faced a backlash over its quick rebound from the financial crisis and its bonus pool, which topped $16 billion last year.
The Rev. Jesse Jackson raised some of those criticisms on Friday, expressing concerns about Goldman's success while others struggled.
Blankfein, who said late last year he was "doing God's work," made an effort to demonstrate humility Friday.
"There is no future for Goldman, certainly no success for Goldman Sachs, unless the economy as a whole grows, and the economy grows in a way in which it doesn't create a wider divergence," he told Jackson. "If there is a silver lining, it certainly affords us an opportunity to be introspective."
Goldman shares turned positive on Friday, rising 1.2 percent to $144.03 in midday trading. They were the top performer in the Amex Securities Broker/Dealer Index.
Silver lining?
Blankfein, who testified before a U.S. Senate subcommittee last week, said Friday that it "was not the most comfortable moment in my life."
Blankfein said lawmakers in Washington asked that Goldman return to help assess the impact of financial regulation. Goldman has a "duty" to explain the ramifications, he said.
For the past year, Goldman has faced a backlash over its quick rebound from the financial crisis and its bonus pool, which topped $16 billion last year.
The Rev. Jesse Jackson raised some of those criticisms on Friday, expressing concerns about Goldman's success while others struggled.
Blankfein, who said late last year he was "doing God's work," made an effort to demonstrate humility Friday.
"There is no future for Goldman, certainly no success for Goldman Sachs, unless the economy as a whole grows, and the economy grows in a way in which it doesn't create a wider divergence," he told Jackson. "If there is a silver lining, it certainly affords us an opportunity to be introspective."
Goldman shares turned positive on Friday, rising 1.2 percent to $144.03 in midday trading. They were the top performer in the Amex Securities Broker/Dealer Index.
Calls for Blankfein's Resignation
Some have speculated that Blankfein might not be able to keep his job through the struggles facing the firm, but he did not offer any indication Friday that he would step aside.
Longtime corporate gadfly Evelyn Y. Davis kicked off the question and answer session by calling for Blankfein's voluntary resignation — and setting a deadline of Monday.
"I have no current plan to step down Monday," answered Blankfein, cracking a smile.
Davis persisted, later asking Blankfein, "If you won't resign by Monday, how about by the end of the month?"
Blankfein again retorted, "I have no intention of doing that right now."
One shareholder from Yonkers received loud applause when he expressed his support for Blankfein.
Shareholders backed the company's nominations for directors and a proposal for an advisory vote on pay. They defeated a proposal by The Maryknoll Sisters of St. Dominic relating to the use of collateral in derivatives trading.
Shareholders defeated a proposal urging the company to separate the roles of chairman and CEO. Goldman's board has recommended a vote against that proposal.
Blankfein, who is also chairman, said at the meeting that splitting the chairman and CEO roles would undercut the board's judgment.
"Our bylaws and our policy don't require that the chairman and CEO be in one office," he said. "It is the judgment of the board."
Sources: CNBC, Reuters
Lloyd Blankfein Refuses To Resign; AIG Dumps Goldman Sachs
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AIG DUMPS Goldman Sachs As Its Top Adviser
As its legal troubles mount, Goldman Sachs is losing a big corporate client: the American International Group.
A.I.G., the insurance giant that planned to retain Goldman to help reorganize its businesses, has replaced Goldman as its main corporate adviser, according to three people with knowledge of the matter, which was not intended to be public. Instead, the insurer is turning to Citigroup and Bank of America.
The move is the first in what some analysts warn could be a series of defections among Goldman’s clients after accusations — vigorously denied by Goldman — that it defrauded customers in a complex mortgage investment. A Goldman spokesman declined to comment.
As Goldman’s legal problems have escalated — first with a civil fraud suit filed by the Securities and Exchange Commission, and then with a federal criminal investigation — some investors have grown increasingly anxious about the potential damage to Goldman’s reputation and business.
A.I.G.’s decision leaves Goldman out of the mix at a pivotal moment for the insurance company and breaks a traditionally close relationship. A.I.G., which has yet to repay billions of dollars of federal aid, helped to insure billions of dollars of Goldman’s mortgage securities, including seven deals like the one involved in the securities fraud case filed last month by the S.E.C.
The news comes as Goldman executives prepare to meet with shareholders on Friday at the bank’s annual meeting. Goldman’s chairman and chief executive, Lloyd C. Blankfein, will confront shareholders who are anxious over the S.E.C. case and a continuing criminal investigation into the bank’s mortgage trading unit.
In what some characterize as a referendum on Mr. Blankfein, shareholders will also vote whether to separate the roles of chairman and chief executive. Many corporations, including major banks, have separated those roles to improve corporate governance.
While A.I.G. is the first company that is known to have canceled major work with Goldman, European officials and some local officials in the United States have also said they are reconsidering their relationships with the bank. Several shareholders have filed suits against Goldman and its board and executives, saying they should have disclosed the S.E.C. investigation earlier.
Goldman executives have told analysts that the bank’s business has not suffered since the case. The bank’s most recent quarterly profit — $3.3 billion — was a huge success by almost any standard, and Goldman officials said the results were proof that they were doing right by their clients.
Still, Goldman’s share price has fallen about 20 percent since the S.E.C. complaint was announced.
An A.I.G. spokeswoman declined to comment. Bank of America and Citigroup did not immediately respond to requests for comment.
A.I.G. met with its two new advisers on Thursday, according to the people with knowledge of the situation. The issue at hand is how A.I.G. can sell off parts of its business to help it return government bailout money while still preserving valuable units that will be part of a surviving company. Once involved in practically every insurance business, A.I.G. is trying to redefine its role in the industry.
The company’s relationship with Goldman dates back decades. A.I.G.’s former chief executive, Maurice R. Greenberg, had a long relationship with Goldman’s leaders. A.I.G. and Goldman briefly considered merging, in the late 1990s.
But this relationship proved disastrous for A.I.G. in the mortgage crisis. A.I.G. insured some $20 billion of mortgage securities for Goldman, including seven similar to the deal at the center of the S.E.C. case, known as Abacus 2007-AC1, though it did not insure that specific deal.
In 2007, Goldman put on a negative bet against housing — what its chief financial officer, David A. Viniar, called “the big short” — and the bank issued aggressive demands for A.I.G. to put up collateral for some of its trades with Goldman. Those demands from Goldman and later other banks contributed to A.I.G.’s liquidity crisis and eventually led to a government bailout.
After the government stepped in, Goldman was among the largest recipients of money from A.I.G. when the insurance company paid its counterparties 100 cents on the dollar to end contracts tied to mortgage investments.
A.I.G. has been through a series of executive changes since its collateral battle with Goldman, and the insurance giant continued to hire Goldman for certain assignments, like its recent sales of its Asian unit, A.I.A., as well as Alico, its overseas life and health insurance business.
Earlier this year, A.I.G. heard pitches from various banks on its overall strategy. It indicated to several parties that Goldman had won that business. Goldman had not begun significant work on A.I.G.’s strategy.
Citigroup also worked with A.I.G. on its sales of A.I.A. and Alico, and Bank of America has been helping the insurance company with some financing. But the change last week was a step up in both of their roles to fill the gap left by Goldman.
Goldman’s employees, top to bottom, have been reassuring clients in recent weeks to try to retain their business. On Wednesday, Mr. Blankfein held a conference call with wealthy individual clients whose savings are managed by the bank.
Still, last week the Teachers’ Retirement System of Oklahoma warned Goldman’s asset management division that it was “on alert” and that the state pension might stop working with Goldman because of the S.E.C. accusations.
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Sources: CNBC, NY Times, Google Maps
Saturday, April 24, 2010
Goldman's E-mails Reveal Profits Soared As Housing Bubble Burst
Goldman E-Mails Cited Serious Profit on Mortgages
In late 2007, as the mortgage crisis gained momentum and many banks were suffering losses, Goldman Sachs executives traded e-mail messages saying that they would make “some serious money” betting against the housing markets, The New York Times’s Louise Story and Sewell Chan report.
The messages, released Saturday by the Senate Permanent Subcommittee on Investigations, appear to contradict statements by Goldman that left the impression that the firm lost money on mortgage-related investments.
In the messages, Lloyd C. Blankfein, the bank’s chief executive, acknowledged in November 2007 that the firm had lost money initially. But it later recovered by making negative bets, known as short positions, to profit as housing prices plummeted. “Of course we didn’t dodge the mortgage mess,” he wrote. “We lost money, then made more than we lost because of shorts.”
He added, “It’s not over, so who knows how it will turn out ultimately.”
In another message, dated July 25, 2007, David A. Viniar, Goldman’s chief financial officer, reacted to figures that said the company had made a $51 million profit from bets that housing securities would drop in value. “Tells you what might be happening to people who don’t have the big short,” he wrote to Gary D. Cohn, now Goldman’s president.
Actions taken by Wall Street firms during the housing collapse have become a major factor in the contentious debate over financial reform. In his weekly radio address on Saturday, President Obama said Wall Street had “hurt just about every sector of our economy” and again pressed the case for tighter regulation. On Monday, Senate Democrats will try to prevent a Republican filibuster in the first major test of the administration’s effort to push through legislation.
Goldman on Saturday denied that it made a significant profit on mortgage-related products in 2007 and 2008. It said the subcommittee had “cherry-picked” e-mail messages from the nearly 20 million pages of documents it provided. This sets up a showdown between the Senate subcommittee and Goldman, which has aggressively defended itself since the Securities and Exchange Commission filed a security fraud complaint against it nine days ago. On Tuesday, seven current and former Goldman employees, including Mr. Blankfein, are expected to testify at a Congressional hearing.
Carl Levin, Democrat of Michigan and head of the Permanent Subcommittee on Investigations, said that the e-mail messages contrasted with Goldman’s public statements about its trading results. “The 2009 Goldman Sachs annual report stated that the firm ‘did not generate enormous net revenues by betting against residential related products,’ ” Senator Levin said in a statement Saturday. “These e-mails show that, in fact, Goldman made a lot of money by betting against the mortgage market.”
The messages appear to connect some of the dots at a crucial moment of Goldman history. They show that in 2007, as most other banks hemorrhaged money from plummeting mortgage holdings, Goldman prospered.
At first, Goldman openly discussed its prescience in calling the housing downfall. In the third quarter of 2007, the investment bank reported publicly that it had made big profits on its negative bet on mortgages.
But by the end of 2007, the firm curtailed disclosures about its mortgage trading results. Its chief financial officer told analysts that they should not expect Goldman to reveal whether it was long or short on the housing market. By late 2008, Goldman was emphasizing its losses, rather than its profits, pointing regularly to write-downs of $1.7 billion on mortgage assets in 2008 and not disclosing the amount it made on its negative bets.
Goldman and other firms often take positions on both sides of an investment. Some are long, which are bets that the investment will do well, and some are shorts, which are bets the investment will do poorly.
Goldman has said it added shorts to balance its mortgage book, not to make a directional bet on a market collapse. But the messages released by the subcommittee Saturday appear to show that in 2007, at least, Goldman’s short bets were eclipsing the losses on its long positions.
In May 2007, for instance, Goldman workers e-mailed one another about losses on a bundle of mortgages issued by Long Beach Mortgage Securities. Though the firm lost money on those, a worker wrote, there was “good news”: “we own 10 mm in protection.” That meant Goldman had enough of a bet against the bond that, over all, it profited by $5 million.
On Oct. 11, 2007, one Goldman manager in the trading unit wrote to another, “Sounds like we will make some serious money,” and received the response, “Yes we are well positioned.”
Documents released by the Senate subcommittee appear to indicate that in July 2007, Goldman’s accounting showed losses of $322 million on positive mortgage positions, but its negative bet — what Mr. Viniar called “the big short” — brought in $373 million.
As recently as a week ago, a Goldman spokesman emphasized that the firm had tried only to hedge its mortgage holdings in 2007.
The firm said in its annual report this month that it did not know back then where housing was headed, a sentiment expressed by Mr. Blankfein the last time he appeared before Congress.
“We did not know at any minute what would happen next, even though there was a lot of writing,” he told the Financial Crisis Inquiry Commission in January.
It is not known how much money in total Goldman made on its negative housing bets. Neither Goldman nor the panel issued information about Goldman’s mortgage earnings in 2009
In its response on Saturday, Goldman Sachs released an assortment of internal e-mail messages. They showed workers disagreeing at some junctures over the direction of the mortgage market. In 2008, Goldman was stung by some losses on higher-quality mortgage bonds it held, when the crisis expanded from losses on risky bonds with subprime loans to losses in mortgages that were given to people with better credit histories.
Still, in late 2006, there are messages that show Goldman executives discussing ways to get rid of the firm’s positive mortgage positions by selling them to clients. In one message, Goldman’s chief financial officer, Mr. Viniar, wrote, “Let’s be aggressive distributing things.”
Goldman also released detailed financial statements for its mortgage trading unit. Those statements showed that a group of traders in what was known as the structured products group made a profit of $3.69 billion as of Oct. 26, 2007, which more than covered losses in other parts of Goldman’s mortgage unit.
Several traders from that group will testify on Tuesday, and their profitable short positions are likely to be of interest to the Senate committee. The Abacus deal that is involved in the S.E.C. complaint and others like it were created within that group.
The messages released by Goldman included many written by Fabrice Tourre, the executive who is the only Goldman employee named in the S.E.C. complaint. They reveal his skepticism about the direction of the subprime mortgage market in 2007. In a March 7 message to his girlfriend, he wrote, “According to Sparks, that business is totally dead, and the poor little subprime borrowers will not last so long.” He was referring to Dan Sparks, then the head of Goldman’s mortgage trading unit.
The Senate subcommittee began its investigation in November 2008, but its work attracted little attention until a series of hearings in the last month.
The Senate announced that it would convene a hearing on Goldman Sachs within a week of the S.E.C.’s fraud suit. Some members of Congress questioned whether the two investigations had been coordinated.
Mr. Levin’s staff said there was no connection between the two investigations. The subcommittee issued subpoenas to Goldman on June 30 of last year and again on March 12, and informed Goldman about who would be called as witnesses on April 5. The S.E.C. has said there was no political motivation in the timing of its complaint.
Among the lawyers Goldman has hired to deal with the Senate inquiry are Michael D. Bopp, a partner at Gibson, Dunn & Crutcher, and K. Lee Blalack II, a partner at O’Melveny & Myers.
Mr. Bopp and Mr. Blalack are based in Washington and both once worked as lawyers for the Permanent Subcommittee on Investigations. Mr. Blalack was the subcommittee’s chief counsel and staff director.
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Sources: CBS News, C-Span, Huffington Post, MSNBC, NY Times, Washington Post, Youtube, Google Maps
Goldman Prepares Its Defense To Market Timing & Subprime Risk Charges
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Goldman Readies Reply To Claims It Misled Clients
Goldman Sachs is preparing its most detailed defense yet to allegations that it misled clients in its mortgage securities business, arguing that the firm was unsure whether housing prices would rise or fall and did not take any action at odds with the interests of its clients.
An internal Goldman document, prepared for senior executives and obtained by The Washington Post, addresses the criticism that the bank invested its own money betting against the housing market while simultaneously urging clients to invest in securities that would increase in value only if the housing market did.
Those concerns over possible double-dealing spiked a week ago as the Securities and Exchange Commission filed a fraud suit against Goldman, alleging that it misled clients by selling them mortgage-related securities secretly designed to fail.
Goldman prepared the 11-page document to serve as the basis for testimony that chief executive Lloyd Blankfein is scheduled to deliver Tuesday before the Senate Permanent Subcommittee on Investigations.
The Goldman paper describes debates among top executives in 2006 and 2007 over whether the firm should make investment decisions based on the belief that the mortgage market would continue to prosper. The document details meetings and e-mails that ultimately resulted in a decision to reduce the company's exposure to the mortgage market, especially subprime loans, by making new investments that would pay off if housing prices fell.
Subprime Risk
Over the past few years, other financial firms and some in the media have complained that Goldman recognized the risks of the subprime mortgage market early on and, without telling clients, developed financial products that would allow the bank to bet against mortgages with its own money. At the same time, Goldman continued to sell mortgage-related investments to clients who expected the subprime loan business to remain vibrant, critics have alleged.
While the firm moved to significantly reduce its losses when the housing market cratered, the impression conveyed by the document is that Goldman was confused, like many other financial firms, over how bad the collapse would be and suffered losses as a result.
The document also reprises Goldman's frequent explanation that it was not investing its own money in financial transactions to make a trading profit but to help investors who wanted to do a deal and could not easily find someone else to trade with. That role, commonly played by investment banks, is known as being a market maker.
A spokesman for the Senate subcommittee declined Friday evening to comment on Goldman's defense.
"Our investigation has found that investment banks such as Goldman Sachs were not market makers helping clients," Sen. Carl M. Levin (D-Mich.), who heads the panel, said Friday. "They were self-interested promoters of risky and complicated financial schemes that were a major part of the 2008 crisis."
In the paper, Goldman argues that it was a relatively small player in the mortgage market, bringing in only $500 million from its residential mortgage business in 2007, less than 1 percent of the firm's overall revenues.
Still, the bank's mortgage investments were large enough that executives began to worry in 2006 that it was betting too heavily on the health of the housing market.
According to the document, the concerns arose in late 2006, when Dan Sparks, the head of the mortgage unit, wrote to top executives that the "subprime market [was] getting hit hard," with the firm losing $20 million in one day.
On Dec. 14, 2006, financial officer David Viniar called Goldman's mortgage traders and risk managers into a meeting to discuss investing strategy. They concluded that they would reduce the firm's overall exposure to the subprime mortgage market.
But the prevailing view of executives, as described in the paper, was not that the housing market was headed into a prolonged decline. They were not looking to short the market overall. That would have entailed making such large bets against mortgage securities that the firm would turn a profit if the market as a whole collapsed, which in fact it did.
The document acknowledges that Goldman at times shorted the overall market but describes those periods as temporary while the firm was rebalancing its portfolio to limit losses if mortgage securities were to lose more value.
At some moments, executives were actually considering making new bets, buying potentially undervalued securities that could pay off when the mortgage market turned around. A day after Viniar met with traders and risk managers, he wrote to Tom Montan, co-head of the securities division, saying, "There will be very good opportunities as the markets goes into what is likely to be even greater distress and we want to be in position to take advantage of them."
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Market Timing
The back-and-forth over which way the market would go, and how to invest in it, continued into 2007.
On March 14, Goldman co-president Jon Winkelried e-mailed Sparks and others asking what the bank was doing to protect itself from a decline in prices of not just subprime loans but also of other loans traditionally considered less risky. Sparks replied that the firm was trying to have "smaller" exposure to those loans also.
But managing director Richard Ruzika took issue with that answer a few days later, saying that Goldman might be overestimating the decline in housing. "It does feel to me like the market in general underestimated how bad it could get. And now could be overestimating where we are heading," he wrote in an e-mail. "While undoubtedly there will be some continued spillover, I'm not so convinced this is a total death spiral. In fact, we may have terrific opportunities."
Sparks later endorsed that optimistic view, suggesting as late as August 2007 that Goldman begin buying more mortgage securities.
The bank did not immediately follow that path, and by Nov. 30, 2007, Goldman had largely canceled out its exposure to subprime mortgages by increasing its bets that the market would continue to slide, according to the document.
But by that account, Goldman also continued to have $13.5 billion in exposure to safer, prime mortgages. That cost the bank. In 2008, the firm lost $1.7 billion on investments in residential mortgages.
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Sources: CNBC, MSNBC, Washington Post, Google Maps
Saturday, April 17, 2010
Goldman Sachs To Blame For Economy Crippling Foreclosure Crisis?
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For Goldman, A Bet’s Stakes Keep Growing
For Goldman Sachs, it was a relatively small transaction. But for the bank — and the rest of Wall Street — the stakes couldn’t be higher.
Accusations that Goldman defrauded Customers who bought investments tied to risky subprime mortgages have only just begun to reverberate through the financial world.
The civil lawsuit that the Securities and Exchange Commission filed against Goldman on Friday seemed to confirm many Americans’ worst suspicions about Wall Street: that the game is rigged, the odds stacked in the banks’ favor. It is the first big case — but probably not the last, legal experts said — to delve into a Wall Street firm’s role in the mortgage fiasco.
It is a particularly sensitive time for Wall Street. Washington policy makers are hotly debating a sweeping overhaul of the nation’s financial regulations, and the news could embolden those seeking to rein in the banks. President Obama on Saturday stepped up pressure for financial reform by accusing Republicans of “cynical and deceptive” attacks on the measure.
The S.E.C.’s action could also hit Wall Street where it really hurts: the wallet. It could prompt dozens of investor claims against Goldman and other Wall Street titans that devised and sold toxic mortgage investments.
On Saturday, several European banks that lost money in the deal said they were reviewing the matter. They could try to recoup the money from Goldman.
And it raises new questions about Goldman, the bank at the center of more concentric circles of economic and political power than any other on Wall Street. Goldman — whose controversial success has leapt from the financial pages to the cover of Rolling Stone — has fiercely defended its actions before, during and after the financial crisis. On Friday, it called the S.E.C.’s accusations “unfounded.”
Wall Street played a complex and, at times, seemingly conflicted role in the mortgage collapse. Goldman and others worked behind the scenes, bundling home loans into investments for sale to investors the world over. Even now, more than 18 months after Washington rescued the teetering financial system, no one knows for sure how much money was lost on those investments.
The public outcry against the bank bailouts was driven in part by suspicions that a heads-we-win, tails-you-lose ethos pervades the financial industry. To many, that Goldman and others are once again minting money — and paying big bonuses to their employees — is evidence that Wall Street got a sweet deal at taxpayers’ expense. The accusations against Goldman may only further those suspicions.
“The S.E.C. suit against Goldman, if proven true, will confirm to people their suspicions about the total selfishness of these financial institutions,” said Steve Fraser, a Wall Street historian and author of “Wall Street: America’s Dream Palace.” “There’s nothing more damaging than that. This is way beyond recklessness. This is way beyond incompetence. This is cynical, selfish exploiting.”
On Friday, Goldman’s stock took a beating, falling 13 percent and wiping out more than $10 billion of the company’s market value. It was a possible sign that investors fear that the S.E.C. complaint will damage Goldman’s reputation and its ability to keep its hands on so many sides of a trade — a practice that is immensely profitable for the firm.
It is unclear whether the S.E.C. can prevail against Goldman. The bank has long maintained that it puts its clients first and, in a letter in its latest annual report, it reiterated that position. Goldman said it never “bet against our clients” in its trades but rather was trying to hedge against other trading positions.
The transaction cited in the S.E.C. complaint cost investors just over $1 billion, relatively small by Wall Street standards.
Still, Wall Street analysts said Goldman and other banks, having navigated the financial crisis, might now face a new kind of risk: angry investors. Most major Wall Street banks also created collateralized debt obligations, which are at the heart of the Goldman case. C.D.O.’s, which are essentially bundles of securities backed by mortgages or other debt securities, turned out to be among the most toxic investments ever devised.
“Any investor who bought these C.D.O.’s and lost a significant amount of money is probably looking at their investment and wanting to know: what were the details behind the sale?” said William Tanona, an analyst at Collins Stewart. “Will they contact the S.E.C. and say, ‘Here’s the transaction we participated in, and we’d love to know who is on the other side of it?’ ”
The biggest victim among investors, the S.E.C. complaint said, was the Royal Bank of Scotland, which inherited a loss of $841 million after it took over the Dutch bank ABN Amro. According to a person briefed on the matter, the Royal Bank, now controlled by the British government, is studying the documents but is not ready to decide whether to try to recoup money from Goldman.
The German bank IKB Deutsche Industriebank, as well as the German government, which in 2007 put up billions to prevent IKB from collapsing, still seemed to be sorting out who might have legal standing to pursue a possible claim.
Goldman faces a dilemma in its response. Wall Street firms tend to settle cases like this one, but Goldman’s statement on Friday indicated it intended to dig in its heels and fight, perhaps in part to discourage suits by investors. That strategy could set it up for a long, messy and public battle.
The S.E.C. complaint named just one Goldman employee: Fabrice Tourre, a vice president in the bank’s mortgage operation who worked on the questionable transaction.
But securities lawyers say Mr. Tourre appears to be a small fish. Federal investigators may try to gain his cooperation and extend their investigation to other Goldman employees. On Friday, Mr. Tourre’s lawyer did not provide a comment on the complaint.
A big question is how far up this might go. The S.E.C. said the deal in its complaint had been approved by a panel at Goldman, the Mortgage Capital Committee.
“It’s typical that they’d start with someone lower down on the chain and try to exert pressure on that person,” said Bradley D. Simon of Simon & Partners, a white-collar defense lawyer in New York. “Is it really conceivable that no one else was involved in this?”
As the housing market began to fracture in 2007, senior Goldman executives began overseeing the mortgage department closely, said four former Goldman Sachs employees, who spoke on the condition they not be identified because of the sensitivity of the matter.
Senior executives routinely visited the unit. Among them were David A. Viniar, the chief financial officer; Gary D. Cohn, then the co-president; and Pablo Salame, a sales and trading executive, these former employees said. Even Goldman’s chief executive, Lloyd C. Blankfein, got involved.
Top executives met routinely with Dan Sparks, the head of the mortgage trading unit, who retired in spring 2008. Managers instructed several traders to sell housing-related investments. Indeed, they urged Mr. Tourre and a colleague, Jonathan Egol, to place more bets against mortgage investments, the former employees said.
A Goldman spokesman said Saturday that the top executives were not involved in the approval process for Abacus, the deal cited by the S.E.C., and that their involvement with the mortgage department in 2007 was related to their desire to counterbalance the positive bets on housing the banks had already made.
Mr. Blankfein has already been questioned by a Congressional commission about the toxic vehicles Goldman devised and sold, even as the bank realized the housing market was in trouble.
Recent public statements made by Mr. Blankfein seem to conflict with the S.E.C. account.
In testimony in January before the Financial Crisis Inquiry Commission, the panel appointed by Congress to examine the causes of the crisis, for example, he described Goldman’s approach to dealing with its clients: “Of course, we have an obligation to fully disclose what an instrument is and to be honest in our dealings, but we are not managing somebody else’s money.”
But the S.E.C. complaint says Goldman misled investors who bought one of the bank’s Abacus deals. The bank failed to tell them the mortgage bonds underpinning the investment had been selected by a hedge fund manager who wanted to bet against the investment, the S.E.C. says. Those bonds were especially vulnerable, the commission says.
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Sources: MSNBC, NY Times, Red Tape Chronicles, Google Maps
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