SEC Case Against Goldman Not Cut-And-Dried

Apr 20 2010 | 1:21pm ET

The Securities and Exchange Commission’s fraud case against Goldman Sachs could be one of a kind, and could prove awfully hard to win.

While some have called the SEC’s accusations against the Wall Street giant the tip of the iceberg, it could prove to be the whole iceberg, Reuters reports. The case alleges that Paulson & Co.’s role in the collateralized debt obligation at the heart of the SEC charges makes that CDO unusual, while Goldman claims it was business as usual.

Certainly, there was disagreement at the highest levels of the SEC as to whether Goldman did anything wrong. The regulator’s two Republican commissioners voted against pursuing the case after a long debate on Wednesday. But the three Democrats on the Commission, including Chairman Mary Schapiro, voted to move the matter forward.

Goldman has said the charges are “completely unfounded.” And, indeed, the whole case may depend on how one defines the word “selected.”

The SEC says Paulson, which is not accused of any wrongdoing, played a major role in picking the residential mortgage-backed securities that went into the CDO, which it then shorted, to great effect. Goldman says the portfolio was vetted and chosen by ACA Management, the CDO’s largest investor.

The SEC says ACA rejected 68 of the 123 RMBS that Paulson wanted included. Goldman says that proves ACA’s independence in the matter, and that Paulson’s role wasn’t material.

To further that case, Goldman has hired Gregory Craig, the former White House counsel to President Barack Obama, to represent it. Craig now works at the giant law firm Skadden Arps Slate Meagher & Flom.

In Depth

Financial Industry Blockchain Consortium R3 To Open-Source Platform Code

Oct 20 2016 | 9:03pm ET

Bitcoin's blockchain technology has spawned a flurry of activity among fintech startups...


U.S. Trust's Beard: The Rapid Growth of the Art Lending Industry

Oct 7 2016 | 10:55pm ET

Alternative investment managers have emerged as some of the most significant art...

Guest Contributor

Hedge Fund Marketing – Tips for Your Initial Sales Meeting

Sep 29 2016 | 5:46pm ET

There are two main goals a hedge fund should have for an initial in-person sales...