Goldman’s “She’s just a girl” defense against SEC charges

She doesn’t show up by name in the charges of civil fraud that the SEC has brought against Goldman. But Reuters reported yesterday that emails written by Gail Kreitman, a Goldman Sachs bond saleswoman until June 2009, are cited by the SEC to show that Goldman misled ACA Capital Management, the company hired to oversee the construction of the Abacus portfolio, and the customers that bought the deal.

In Kreitman’s emails to ACA executive Laura Schwartz she doesn’t correct Schwartz when she refers to hedge fund Paulson & Co. as an equity investor in Abacus. In fact, Goldman knew that Paulson wasn’t an investor and that the fund was actively betting that Abacus would fall in price. Paulson, the SEC says, was involved in the selection of the mortgage-backed securities that went into the Abacus 2007-ADC-1 synthetic collateralized debt obligation and used that involvement to structure Abacus to fail. Goldman’s alleged failure to disclose Paulson’s involvement is a key element in the SEC’s charge of fraud against Goldman. (Paulson & Co. was not named in the complaint. Goldman has said that the SEC charges have no basis in fact.)

Kreitman’s emails clearly make Goldman Sachs nervous. In a legal filing submitted to the SEC last September, Reuters reported, Goldman’s lawyers pulled out every argument they could think of for why Kreitman’s emails didn’t mean what they seem to mean because Read more

An intelligent guess at who’s at risk after the SEC charges Goldman Sachs

Who’s next?

Now that the SEC (Securities & Exchange Commission) has filed a civil fraud suit against Goldman Sachs (GS), Wall Street’s favorite game is guessing which big bank the agency might name next.

Some of the lists have no credulity at all—they’re simply guess-work mixed with spite.

Others depend solely on whether you believe the source is somehow in the know.

A list from Credit Suisse (CS) that’s making the rounds today from hand to hand and in a Bloomberg story does, however, have a reasonable methodology and solid numbers.

And it makes very interesting reading. Read more

The SEC case against Goldman punctures Wall Street’s “Act of God” defense–the agency says the global financial crisis was somebody’s fault

The SEC (Securities and Exchange Commission) today, April 16, charged Goldman Sachs (GS) with civil fraud. And the whole market has sold off. At 12:30 ET the Dow Jones Industrial Average was down 162 points or 1.45%. The Standard & Poor’s 500 Stock Index was down 1.97%.

What is the SEC charging and why is this such a big deal?

The charges go to the heart of a long-standing conflict of interest at Goldman Sachs in particular but also at Wall Street’s big investment houses in general. And they threaten to put an end to Wall Street’s argument that the financial crisis in the United States was an act of God and nobody’s fault. Read more

23% on our bailout money? Hey, Goldman Sachs it’s not enough

Goldman Sachs (GS) is going to pay the U.S. taxpayer–hey, that’s you and me–$1.1 billion for the use of the $10 billion last October when Wall Street looked headed for a meltdown. The $1.1 billion will buy back warrants that the government took as part of the initial investment. (Taxpayers have also collected $318 million in preferred dividends.)

The $1.1 billion on our $25 billion investment comes to an annualized return of  23%.  (The annualized return is higher than the simple return of roughly 11% because taxpayers got their $1.1 billion in less than a year’s time.)

Now, I can think of a lot of investments where I’d be more than happy with a 23% annualized return. My money market account. My kids’ college savings accounts. Even Jubak’s Picks.

But in this particular case? It’s just not enough. Read more

The banking “recovery” is less than it seems from earnings

We’ve got half a banking recovery. That’s not at all the same as being halfway through a banking recovery. What the second quarter results from Goldman Sachs (GS), JP Morgan Chase (JPM), Citigroup (C), and Bank of America (BAC) tell us is that profits from the investment banking side of banking—arranging financing for big company clients—and trading are back big time. But the other side of banking—the bread and butter business of making commercial loans, lending to credit card holders, and the like is still bleeding oceans of red ink.

What we’ve got now is a banking sector rigidly divided into winners and losers. Worryingly for investors inclined to pile into the winners, the profits from the businesses that are thriving right now are way more volatile than those from the stodgier traditional parts of banking. You’ve got to wonder if Goldman and JP Morgan Chase can keep it going and for how long given the normal ups and downs of investment banking and trading. Read more