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

Regulatory reform won’t fix the financial system; it’s time to think about starting over again from scratch

All the plans that I’ve seen to ”reform” the financial markets flounder on one problem: They all assume that if you give regulators more power, they will regulate.

 The record says that’s simply not true. And if it’s not, giving the Federal Reserve, the Securities & Exchange Commission, and other regulators more power will do absolutely nothing to lessen the chances of a repeat of the financial crisis that almost took down the world economy.

Consider the slapdown administered by federal judge Jed Rakoff to the Securities & Exchange Commission (SEC) on August 10.

The SEC had proposed settling its case against Bank of America (BAC) with the bank paying $33 million. Bank of America wouldn’t, of course, admit that it had done anything wrong in the case.

The case was yet more fallout from Bank of America’s purchase of Merrill Lynch at the end of 2008. In November 2008, Bank of America sent out a proxy statement to investors saying that bonuses would not be paid to senior Merrill Lynch executives without the consent of Bank of America. In fact, however, Bank of America had already agreed to payouts to Merrill Lynch executives of $5.8 billion in bonuses as part of the original merger agreement.

In other words, the proxy was completely misleading. Someone lied to investors.

What riled Judge Rakoff was that the SEC was letting Bank of America get off without naming that someone. Read more

Obama’s fix for S&P, Moody’s, Fitch: Better than nothing but not enough

The Obama administration has delivered its proposal for fixing the credit rating companies that so contributed to the near meltdown of the global financial system.

Is it enough to get the job done? Not in my view. Read more