SEC v. Goldman Sachs: What's the End Game?

So far no one seems to be talking about the end-game of the SEC suit against Goldman Sachs over the Abacus CDO.  What is the SEC really looking to do here?  Regardless of whether this case goes to trial or settles (and I'd bet on the latter), what does the SEC want from Goldman? 

This can't just be about a monetary penalty.  Any monetary penalty comes at the expense of Goldman's investors, not the managers at the time (the Rakoff problem), and if the monetary penalty is large enough to really make Goldman hurt, it will threaten the firm's viability.  I don't think the SEC is looking to do that. 

Maybe it's as simple as the SEC wanting to make Goldman say "uncle," to reestablish its reputation as the tough cop on the Street.  Clearly the SEC needs to put up a good fight to restore the luster of the agency after Madoff.  That probably requires a win, but just trotting out the colors does a lot to restore the agency's reputation, and what better foe to challenge than Goldman if the SEC wants to show its mettle?   Regardless of the merits of the case (remember that the SEC, with limited resources, doesn't pursue every possible case), this could be "who's your daddy" litigation. 

Alternatively (or additionally), maybe the SEC's ultimate goal is some type of injunctive relief.  There's always the permanent injunction against doing anything bad again, but that's really not such a heavy duty penalty.  Let me suggest another possible route of action:  the SEC uses a settlement to implement something like the Volcker rule.  The SEC could demand that part of a settlement be that Goldman separate its proprietary trading and its underwriting operations. 

I don't think that's a likely scenario, but it's not as farfetched as it might sound.  Recall that the SEC (and FDIC) is running well ahead of Congress in terms of financial reform, with proposed regulations on asset-backed securities and disclosures from large traders.  The real financial reform might come out of the agencies, rather than Congress.  But there's no reason it has to happen solely through regulation.  The history of the SEC shows that the agency knows how to advance a regulatory agenda through both regulations and through carefully chosen litigation (e.g., the history of the Public Utility Holding Company Act, which the SEC litigated very carefully to avoid courts hostile to the legislation). 

Comments

[dWj]

Certainly no fine is going to be big enough to be the issue for Goldman if its clients decide they can't trust it. Goldman wants to win this, or keep the penalties small, but is much more interested in defending itself to its clients right now than to the SEC.

[AMC]

The end game is clear -

To show the absurdity of allowing financial giants to bet against their own deals on Wall Street, putting the entire economy of the World at risk, while poor Pete Rose can't get into the baseball Hall of Fame because he on a "national pass time" with little real effect on our lives.

Pete Rose gets into the baseball HOF, everyone at the SEC goes home happy.

[Mike Dillon]

100% disgorgement of any ill-gotten gains would have absolutely zero effect as a disincentive on either GS, in particular, or the industry, in general, if the final outcome, whatever it may be, includes phrases even remotely close to "without admitting any wrongdoing."

USA/Curry v. Fairbanks ($55M settlement/281,100 victims) contained that phrase. Four years later FTC v. EMC/Bear ($28M settlement/85,000 victims) was settled. Zero deterrence. Civil "penalties" are nothing more than the rolling of the dice and the cost of doing business. Besides, isn't that what D&O and E&O policies are for?

[Patches]

NO they are going to stall endlessly in court and make a ton of interest on all that dough....OR give it all away as bonuses..

[mt]

1) The SEC is a bureaucracy that depends on Congress but has been performing poorly in all facets of its mission.

2) Congress is led by a party that wants to beat up on Wall Street for electoral gain.

3) The SEC is seeking to curry favor with Congress by beating up on Wall Street in the hope of resurrecting its standing among the dominant party in Congress.

4) It doesn't matter if the suit fails on the merits a year or more from now. All that counts inside the beltway is that the SEC is seen by Congressional Democrats as being part of the get tough on wall street team in 2010.

[Patches]

Political or not we got to bring the synthetics out into the open and expose the inherent conflict of interest of paying a ratings agency to rate your own bonds. I don't think Moodys has taken the hit they should have for rating those bonds AAA when, according to the Emails shown in Senate Judiciary Committee 4-6 months ago, they didn't even know where to start.

Who's going to care but us nerds in a non-election year?

[Judge Roy Bean]

In three months people will be yawning if it's even mentioned.

No one with a seven-figure annual income is at risk here; the financially meaningless settlement will soon mollify the ignorant, enrage a few of the knowing and of course protect the guilty from criminal charges.

[Adam Levitin]

You don't think Moody's has taken a hit? Structure products was 40% of the big 3 CRA's income in 2007. Most of that business is gone. Not the same as liability, but their sails (and sales) have definitely been trimmed.

[Lawrence Baker]

An “octopus wrapped around the face of humanity” as one journalist put it; the New World Banking Order has arrived. In 2009 speculative, uncontrolled derivatives were the Worlds largest market at an estimated 600 Trillion. The Worlds total economic output was an estimated 58.07 Trillion and the total World bond market was an estimated 82.2 Trillion. Yet, there is no “crime” that the bankers can be charged with as they bankrupt citizens and Nations into the New World Order?
The appropriate criminal charge should be Treason to the American People and our Democratic Republic and Constitution. The members of the Trilateral Commission and the Bilderberg Group in government and banking who conspired to overthrow our soverenity as an independent nation, who conspired to bankrupt our Treasury with unjust Wars (3) and multinational corporate bailouts, conspired to control mass media “free Press”, conspired and manipulated “financial crisis” for their own gain, conspired to “relocate” American industry and technology, conspired to offshore “American Income Tax”, and who have conspired to enslave American citizens with National debt (about $64,000 per citizen) and personal debt. Deserve the death sentence by firing squad for Treason.
Obama, your New World Order is Totalitarian and we Patriots, American free citizens, will fight for our Democracy, Independence and Freedom.

[greg]

I am presently in litigation with Fremont Reorganizing, Goldman Sachs dba Litton Loan Servicing, et al., (2 different cases) for about 2 years now. The main issue with the complaint is a fraudulent loan originated by Fremont in June 2006. This in turn produced an array of other
issues: unsigned deed of trust, over billing issues, lost payments, excessive balloon payment, back dated assignments, illegal non-judicial foreclosure documentation, missing documentation, illegally reporting to my credit, falsifying declarations, 6 week TRO's, court procedures not followed, judges wait until the courtroom is cleared to rule against a TRO (both times); retired (78 year old) judge ruled against a seated judges TRO where the retired judge took 30 minutes to read a 300 page brief. The whole time they have been ignoring my request and failing to give me the required documentation so that I can rescind the loan. Goldman Sachs dba Litton Loan Servicing has been aggressively trying to foreclose on my property. I believe to cash out for insurance reasons. (It's over a million dollar loan) I have invested over $400,000 into this property for the past 5 years and if I had known about this mortgage meltdown game played by Wall Street I would have never proceeded with this Real Estate transaction. The Media and the Government has not once addressed or helped the borrower, namely me, who also has been damaged by these defaulted CDO's.

A Time line of what's going on with Goldman Sachs to show how they are scheming to pursue foreclosures for the insurance by acquiring distressed, shelled fraudulent companies which will eventually or haven't already gone BK...

 Oct 26, 2005 Litton Loan Servicing Class Action - mishandling loans, servicing over 400,000 borrowers - case settled Feb 17, 2009 for $537 (limited due to class status)
 Feb 27, 2007 FDIC Cease and Desist - Fremont Reorganizing for illegal loan practices, et al., (largest predatory lenders who heavily solicited brokers for their schemes)
 Oct 16, 2007 Massachusetts Lawsuit vs Fremont and Goldman Sachs - Predatory Lending Practices - settled May 11, 2009 for $60 mil
 Dec 11, 2007 - Goldman Sachs Acquires Litton Loan Servicing
 June 2, 2008 Litton (Goldman Sachs) Acquires Fremont Reorganizing Servicing Rights
 June 19, 2008 Fremont Reorganizing files BK
 Apr 16, 2010 - SEC vs Goldman Sachs - Securities Fraud

Here is the link to my blog http://bushnellcomplaint.blogspot.com/ if you want to download court documents pertaining to my case.

Note: My wife is pursuing individuals who are interested in joining her in a class action lawsuit with regards to violation of her community property rights in a wrongful foreclosure. If you are in a community property state and a spouse is not on title you may have grounds for legal action.

[Lawrence Baker]

SEC vs. Goldman- 21st Century age of Enlightenment or Tyranny?
Will bankers and big oil lead humanity into an enlightened 21st. Century of green energy and humanitarianism or will this be the century of World Totalitarianism of the New World Order? We know that “morality” is a “no” word for bankers, big oil and investors alike; yet they are leading us into the New World Order with their heartless and coldblooded culture of greed by the few. World conquest by tyranny is not new and it certainly is not orderly; it is chaos. Hitler already tried World domination by tyranny in the last century. The nations of Greece, Latvia, and Iceland have already fallen into “order” and Spain, France, Germany, Portugal, Ireland, Italy, United Kingdom and the United States of America are scheduled to fall into “order”. The American people do not want to lose our Democracy, Independence and Freedom; yet this World totalitarian agenda emanates from the United States of America and is lead by the Bush/Obama Administration in our name. The World is looking at the American people as their last resort for salvation and praying that the American people will stand up to this evil force and do the right thing. By saving ourselves, we will also save them. We are the only ones who can change the direction of our own country with what freedoms we have left.
The SEC vs. Goldman is a test of strength between the American people and the World bankers, indeed, the New World Order. If the American people do not bring the bankers to Justice in our court system; the bankers will be free to dominate the World.
The injunctions will lead to the White House and the Bush/Obama Administration which is dominated by Trilateral World bankers. Zbigniew Brzezinski is the designer and architect of the bankers Trilateral Commission and the New World Order; he is also Obama’s top advisor. Geithner, Volker, Greenspan, Summers, Corrigan and Peterson are all of the same banking family of World bankers (America is their host) Goldman Sachs, Morgan Stanley, Bank of America, JPMorgan Chase, Wells Fargo Federal Reserve, IMF, World Bank etc; their tentacles reach into every economy in the World. The World total economic output in 2009 was 58.07 Trillion and the total World bond market was 82.2 Trillion. The largest market in the World is the Derivatives market at 600 Trillion and is used primarily by the bankers as a weapon of mass destruction of economies to bring them in line with the New World Order. Their modus operande is the same for American citizens as it is for Nations.
The banker and oil dominated Trilateral Bush/Obama Administration has purposely driven the United States of America into debt under their expert banking management by the systematic pillaging of our Treasury. Our National debt interest is at 15% about the same as the United Kingdom according to Moody’s bond rating March 15. “the U.S. will be paying about 15 percent of revenue in interest payments, more than the 14 percent limit that would lead to a downgrade to AA, Moody’s said.”
http://www.bloomberg.com/apps/news?pid=20601068&sid=a0a8xAghPS8I
In the financial world, loosing your AAA bond rating changes the banking agreement substantially (as every home owner knows) that is when the fine print kicks in and the spiral to the bottom begins. Look at Greece, Latvia, Iceland and now the UK. Germany, France and Spain AAA credit ratings are in danger as reported in the U.K Telegraph on March 15 (referring to Moody’s) “The US rating agency said the US, the UK, Germany, France, and Spain are walking a tightrope-“
http://www.telegraph.co.uk/finance/economics/7450468/Moodys-fears-social-unrest-as-AAA-states-implement-austerity-plans.html
To control and accelerate that rush to the bottom of Nations, major banks are frontloading the odds of default of a Nation down on Wall Street in a computer so they can control and manipulate trades with high-frequency trading in derivatives. High-frequency trading is how Goldman Sacks (U.S.A) makes at least 200 million a day in derivatives on Wall Street and accounts for most of the 3.3 billion made in profit last quarter. This one example of Goldman Sachs (U.S.A) operations is but the tip of the arrow head and the shaft is sure to follow. By flying the United States of America economy and government into the ground the New World Order of Trilateral Traitor bankers become winners. Now, who is the terrorist?
I hope Americans have empathy for the people of Greece and all the other people of Nations who face “Austerity measures” because their destiny will soon be our own fate. The bankers are brutal; the National financial burden is on the people with forced tax followed with the gutting of social services and privatization of National infrastructure and National Natural Resource for pennies on the dollar.
If you can empathize with these people I suggest that you take action and button-hole your representatives in Congress today and tell them to make a stand for the American People against this takeover of our government by Trilateral bankers and the New World Order. Demand that they insist that ALL of the subversive Trilateral members in government to STAND DOWN. Insist that Treason charges be served on all who conspired to overthrow our American Independence, Democracy and Freedom (there are only about 1,500 Traitors). Insist that Free Press, the watch-dog of Democracy, be restored by breaking up the monopolies in the Media.
Main Street Capitalism, Competitive Market, and Free Enterprise are America’s tried and true standard and our economy and government can recover from this treachery if we act now by getting back to our roots of industry, manufacturing and technology instead of being smothered by the Multinational Corporate Empire, by proxy, by our government. Our economy needs Fair Trade not (Free (sic) Trade and Free Enterprise and Competitive Market not controlled markets by the multinational corporate monopolies.