Monday, April 19, 2010

Goldman Case Difficult

Binyamin Applebaum reports in the NYT that

Several experts on securities law said fraud cases like this one, which focuses on context rather than content, are generally more difficult to win, because it can be hard to persuade a jury that the missing information might have led buyers to walk away.

Goldman Sachs is reporting its quarterly earnings tomorrow, and chances are that the firm made a lot of money. Today would probably have been a good time to buy Goldman stock at a discount.


Zachary Goelman said...

Q1 revenues more than $1 bln higher than Wall Street estimates.

Noah K said...

I get the sense from the rest of the article that securities law experts also see the law here as *in flux.* The SEC, they say, has been trying to expand/fine tune the definition of "material information." You really, from Applebaum's article, get very conflicting answers on the extent to which the SEC is innovating here. Is the situation that financial markets have changed so much since the SEC protocols were laid down that this particular confrontation is going to chart new territory -- or instrumentalize the law, depending on your preference? Or is it, as one interviewee said, a conflict of interest as old as stock-brokering? With the SEC having released, apparently, so little of its full case, I suppose the real gauge of the prospects of conviction or acquittal is the amount of money that Goldman can and will throw at the case! And really, this isn't Russia (or some backward medieval state), the rule of law will prevail -- it's for the courts to decide this.

Amos said...

Warren Buffett quoted by Dealbook in today's NYT:

On Sunday, Mr. Buffett said that the case against Goldman seemed to be based only on hindsight.

"It's very strange to say, at the end of the transaction, that if the other guy is smarter than you, that you have been defrauded,” he said. “It seems to me that that’s what they are saying."

Noah K said...

As Amos and I have discussed, I don't agree with the previous comment (his) on journalistic, political, or substantive grounds. Let me say, I am all for opening up this blog to a wider set of issues, but if we are going to discuss any story critically, I think that the crucial context for the above quote deserves to be set next to the quote (not referred to implicitly through link). Here, the issue is that Warren Buffett is an enormous shareholder in Goldman, and I imagine, that particular quote comes from his fund's annual meeting, where the very purpose of the speech is to cheerlead the performance of the fund. With securities lawyers entirely confused about how to predict the outcome of the SEC case, the idea of taking the characterization of the case by a major stakeholder in the defendant's market performance at face value is to my mind not critical. Any guy on the street is more objective than Warren Buffett. Let's quote one, full stop.

The major claim of the SEC's claims to objectivity over say Buffett's are that they at least have been vetted by the SEC's politically divided governorship. Moreover, the Justice Department apparently thinks that the same transaction (and more) is worthy of criminal investigation. Taking Buffett at his word, especially when he is literally repeating the Goldman talking point about "sophisticated" investor who just plain lost is "sampling for the dependent variable."

Several new civil suits have taken aim at Goldman too over this stuff. These counter-parties, I am sure, an electrical employees union among them, have their own ways of characterizing the transaction and GS's surrounding behavior. I don't think we should pass those statements off without scrutiny either.

Since the Justice Dept. investigation is likely about in large part conflicts of interest, it's particularly ironic that we call in Buffett speaking to his own shareholders as the voice of reason here.

I am all for reviewing the media, particularly when we can't get at the facts because legally they aren't disclosed to us.

Noah K said...

There's your objective source, Buffett, out defending his friends at Moody's, once he had been subpoenaed! If that doesn't convince you that he isn't a neutral voice on what went wrong, I don't know what will.