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Richard (RJ) Eskow
Published: Saturday 14 April 2012
“The SEC has the power to shut Goldman Sachs down for what it did, and the offenses it describes are felonies. But they just gave out another slap on the wrist - no, make that a pat on the wrist - with today's announcement.”

The Latest SEC/Goldman Sachs Sweetheart Deal is the Worst One Yet

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The sweetheart deals just keep coming. Lawbreakers at one bank after another are let off the hook as their shareholders write a check. And then they go out and repeat the illegal behavior they promised not to do in the last settlement.

It shouldn't be surprising that this keeps happening over at the SEC - especially as long as Robert Khuzami continues to serve as Director of the Commission's Division of Enforcement.

But while each of these deals has been shameful, destructive, and outrageous, the $22 million agreement with Goldman Sachs which the SEC announced today - another one in which the guilty party "neither confirms nor denies wrongdoing" - looks like the worst one yet.

The SEC has the power to shut Goldman Sachs down for what it did, and the offenses it describes are felonies. But they just gave out another slap on the wrist - no, make that a pat on the wrist - with today's announcement.

The Worst Thing

It's not just the fact that the SEC continues to ignore the public's outrage by letting bankers off scott-free. And it's not just that this kind of irresponsible behavior ensures that the law breaking will continue. Its not just that crooked bank executives are allowed to "neither admit nor deny wrongdoing."

It's not even the fact that this time around the SEC has worded its announcement in a clumsy attempt to obscure the criminal behavior of Goldman's employees - although that's one of this agreement's worst features.

No, what makes this deal the worst we've seen in a long while is the timing. Most of the other recent sweetheart deals dealt with crimes that led up to - and created - the 2008 financial crisis. But this time Goldman Sachs is walking away from crimes its bankers committed as recently as last year.

That's been the SEC's pattern under both the last President and the current one. The number of repeat offenses compiled by the New York Times for these SEC deals is mind-blowing.

No wonder the SEC didn't appear before reporters to announce this latest settlement, choosing instead to announce in an email. Cowardly - but then, would you want to show your face in public after signing a deal like this?

The Crime

What crimes did Goldman Sachs employees commit this time around? They pressured their top analysts to share confidential information in meetings called "huddles," exchanging "high conviction" rating changes the analysts planned to make but hadn't announced yet. These changes were then shared with what the SEC called "a select group of Goldman's top clients" under a program called the "Asymmetric Service Initiative," or "ASI."

Goldman Sachs had "means, motive, and opportunity":

Means. From the SEC: "Between January 2007 and August 2009, there were hundreds of instances when a ratings change occurred within five business days after the stock was discussed at a huddle, referenced in a huddle script ..."

They leaned on their guys to get it done. The SEC's report says that "Analysts' contributions to huddles and ASI, such as increased commissions generated from ASI clients, were discussed in analysts' written performance reviews and in other documents used in connection with analyst evaluations."

Anybody who's worked on Wall Street knows what that means: Come up with information and get results with it - or else.

Motive. From the SEC again: "The huddle and ASI program was part of a concerted effort ... to improve or maintain the broker votes of Goldman's highest priority clients, including ASI clients, and accordingly, generate greater trading commissions."

Opportunity. How useful could it be to know in advance what Goldman Sachs analysts think? Consider this headline from Bloomberg News: "Staples Falls after Goldman Sachs downgrades stock." Then read the first sentence of the article: "Staples Inc., the world's largest office-supply retailer, fell the most in more than two months after Goldman Sachs Group Inc. downgraded the shares to 'sell' from 'neutral."

Then look up some similar articles about stock prices for Whole Foods. Or Patriot Coal. Or Intel. Or Meritage Homes. Or Colruyt.

Patriot Coal stocks fell by six percent the day after Goldman's announcement, and Staples fell by nearly as much that morning. An "asymmetrical" client could execute a quick $1,000,000 trade and walk away with sixty grand before lunchtime. That kind of information is very lucrative ...

The Punishment

... and very illegal. It's a violation of Section 15(b) of the Securities and Exchange Act and is punishable as a felony. It's so illegal, in fact, that Goldman Sachs could be closed down entirely, either temporarily or permanently, "in the public interest."

That sounds right. But everybody on Wall Street knows that's not going to happen.

And as long as there's no real downside - no prosecutions, no big fines coming out of a banker's personal pockets - there' s no reason to stop.

The Perp

But then, that's Goldman's way of doing business - sleazy, preferential, and highly illegal. These charges resemble "spinning," the practice of letting preferred clients by into an IPO at inside-the-deal prices so they could immediately sell them off - usually at a big profit.

(It was that corrupt practice that eventually ended Meg Whitman's membership on Goldman's board and led to a lawsuit from shareholders of eBay. That's the company whose CEO chair made Whitman a desirable client at the time. The suit was settled for $3 million.)

The Cover-Up

In the SEC's words, the "huddle" and "ASi" processes "created a serious and substantial risk that analysts would share material, nonpublic information...Goldman did not establish, maintain, and enforce adequate policies and procedures to prevent such misuse."

But those are weasel words. If you read the SEC brief in detail, it's clear that Goldman didn't just "create a serious and substantial risk" that insider information would be illegally shared. The SEC's records make it pretty clear that information was illegally shared.

And they tried to cover it up. Ideas from the huddles were tracked on spreadsheets called "Records of Ideas," but the were later withheld from Goldman's own surveillance analysts. The SEC report then notes that "Even when alerts regarding trading ahead of research changes were triggered by Goldman's surveillance system, all but one were closed with no further action after only a limited review."

And even when the surveillance system showed evidence of insider trading, despite the cover-ups - activity like a big buy or sell right before a major announcement - Goldman did nothing to follow up. Senior Goldman officials knew what was going on and did nothing, as you can tell from sentences in the SEC's report like this one: "During 2007, members of Goldman's Compliance Division drafted a proposed insert concerning huddles for the ... Global Policies and Procedures Manual, but no such policy was ever implemented."

The "Enforcer"

And yet the strongest words we heard from Director of Investigations Khuzami was that "Higher-risk trading and business strategies require higher-order controls."

He added (in writing, of course; he didn't face reporters) that "despite being on notice from the SEC about the importance of such controls, Goldman failed to implement policies and procedures that adequately controlled the risk that research analysts could preview upcoming ratings changes with select traders and clients."

In other words, they promised not to commit this crime anymore so we let them off with a warning. Now they've done it again - and we're letting them off with a warning.

But don't worry. "Respondent (Goldman) has agreed that "it shall cease and desist from committing or causing any violations and any future violations of Section 15(g) of the Exchange Act."

Well, alrighty then!

Asymmetrical Warfare

You know who got screwed in this deal? Pension funds and other groups of "ordinary" investors who have placed their assets with Goldman Sachs, but weren't considered part of that "select group of top clients" that were given access to this "asymmetrical" information - even though in many cases they were investing far more through Goldman than most individual clients.

That was probably prudent on Goldman's part, since institutional investors might have blown the whistle on their illegal activity.

The net effect of Goldman's "asymmetrical" illegality is to further enrich the already-wealthy while playing the rest of us for suckers. Our money - whether it's our pension, our IRA, or any other institutional funds the most fortunate among us are clinging to - loses value in this game, while others profit from insider trading.

The Evidence

Fortunately there are some promising leads. Those "Record of Ideas" spreadsheets look like a goldmine. It shouldn't be difficult for diligent criminal investigators to tie these spreadsheets to subsequent Goldman-managed trades. And those internal surveillance reports - the ones that were ignored by Goldman's senior management - could be extremely useful in identifying potentially criminal acts by individual Goldman Sachs employees.

A thorough review of the email traffic among Goldman's executives, starting at the very top, should tell investigators who in senior management might also be a candidate for prosecution. While they're doing that they can contrast the public and private communications conducted by Goldman's CEO and CFO while they were affirming under Sarbanes-Oxley that they've personally reviewed the company's procedures for identifying and preventing fraud.

But we haven't heard word one from the Justice Department about any pending criminal investigation. But then they're not answering our media inquiries down there nowadays, so citizens will have to ask them - or the White House - themselves: Where are the indictments?



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ABOUT Richard (RJ) Eskow

Richard (RJ) Eskow is a well-known blogger and writer, a former Wall Street executive, an experienced consultant, and a former musician. He has experience in health insurance and economics, occupational health, benefits, risk management, finance, and information technology.

Im looking for a book that

Im looking for a book that ttergas this very topic I think its titledThe Bubble Corporation?The bubble Company?I heard an interview like this within the last year where the author had described GSachs as the architect of almost all dangerous investment bubbles of the last cerntury complicit in this is the Fed Bank, Reserve and every administration that continues to appoint X GSachs employees as Fed Chair or policy advisors etc.If you know of the book pleaserespond to my email

We the People are like the

We the People are like the Occupy movement.....we ar also without a central leader. We need to unite under one of the many organizations fighting for our rights. I don't know which one that should be. We could start by defying the media and the corporate, banking elite, and ELECT RON PAUL. No other candidate represents any change to the status quo.

That candidate that will

That candidate that will stand up and fight for We the People is only Ron Paul at this moment. We need to defy the bought and paid for media and the corporate, banking elite ruling us.....and elect him. He is the only one who does not represent the status quo. It is certainly obvious to the status quo that Ron Paul is a threat to their welfare. Why else would they spend all their efforts on his media blackout, except for bashing him. The media darling is Romney, of course. He is backed by all that we despise.

Romney will be no different

Romney will be no different if elected. He isn't about to change the rules that have benefitted him so much. Since he's hiding so much wealth overseas he will hardly endorse change that would affect those who are most likely doing the same.

Let's face it, we need to find a way to eliminate the lobbyist and PAC money and to be able to pick our own candidates for election. Think that will happen? not even remotely likely, unfortunately. And as an added protection, these entities have the not-so-supreme court to end any such attempts.

WE the People need a

WE the People need a president that will stand up and fight for US. It's a shame our elected president, that promised to fight for WE, the People, refuses to do so. WE need to demand that OUR president and OUR attorney general start to do their jobs. I STILL say, WE need a third party candidate that is not afraid to stand up and fight WITH and FOR WE, the People.

The SEC? It was in Building

The SEC? It was in Building 7, WTC.

www.rememberbuilding7.org

Where is Indira Singh?

Deconstruct, y'all, like Deconstructing the Myth of AIDS by Gary Null. Kim who?

James Bamford

Randell L. Mills

Lynn Margulis/James Lovelock

World Justice 2012

Sorry, but what the real

Sorry, but what the real problem is way more basic. What Obama has frequently said (and FDR too,) is that if WE want something done, WE have to make him do it. If you believe Obama would turn his back on a huge upwelling of public action on this... I've got a Romney campaign to sell you.The fact that We The People have been asleep at the wheel so long that we've lost control of our electoral, legislative and judice processes. Occupy, Common Cause ACLU and a few other on-line orgs are the only ones battling for our democracy.We've got to get off our dead asses, get smart on the Root Cause issues, and GET INVOLVED!

Yes, and the root cause is

Yes, and the root cause is ALEC!!! alecexposed.org

Boycott all corporations that are members.
Recall or do NOT re-elect policitians that are members of ALEC!!

Since '72 - systematic implementation of laws that curtail our Freedoms!

you missed Seabury's point -

you missed Seabury's point - We have let ALEC etal take over - mission creep and legislative complacency

I complained to my congress people but nothing - should have voted them out sooner, but have voted them out

We need to keep up the pressure

the Right's way, is the wrong way,
and the collapse is their baby
(and of course, now that it is born, they disown it)

I think Mr. Murphy is on

I think Mr. Murphy is on target. Obama and Holder have their backs against the wall on this one. Billionaires seemingly rule the planet. Who is going to say "no" to them? The House and Senate have been bought by them and politicians today are not about to bite the hands that feed them. There is nothing at this point, in the minds of our politicians and "regulators," that can be done. This why, in my opinion, the Occupy movement may have the answer. The movement is global and massive and yet lacks any leader, which is a very unique situation. My concern about this is that the media and superPACSs will portray them as "potential terrorists".

I think the reason there are

I think the reason there are no prosecutions is that ultimate responsibility rests with the negligent agencies and elected leaders who have refused to A) properly regulate and B) enforce regulations already on the books. Why pursue that CEO when the investigation will ultimately lead right back to me?

Obama and Holder refuse to

Obama and Holder refuse to look back and criminally prosecute Obama's thieving Wall Street "Savvy Businessmen" billionaire buddies. That's why Obama recently added only 55 people to help investigate Wall Street thievery.

Ronald Reagan had thousands in each region of the country investigating the Savings & Loan crooks, and that led to federal prison time for about 1200 S & L bankers.

Obama and Holder are the problem and must go. Their thieving Wall Street "Savvy Businessmen" buddies will have perpetual wealth employment opportunities for them and their families when they leave public office.

I think if the "Main Stream"

I think if the "Main Stream" Media would really get a hold of this and shake it a lot more the SEC would Have to do something more than the proverbial "pat on the wrist".

Goldman Sacs is NOT too Big to Fail. They keep digging their own graves and think no one is going to call them on it.

Khuzami definitely must go and a real Bulldog needs to be put in his place. That Dog must be someone who has no ties w/ G-S nor any other Financial Giant.

It is time to CLEAN HOUSE!!! Pres. Obama must get out the BIG BROOM and clean from the top down.

He must know that his Opponent in the Presidential race is going to playing w/ those who "brung him".

If he wants to be reelected he must work for the PEOPLE who put him in office and will do so again with a greater majority than last time...if he does the correct thing and stop this madness.

ah but it was Goldman money

ah but it was Goldman money that brought him into office.

the MSM is owned by by Wall

the MSM is owned by by Wall Street.

But Barry should have the balls to know the public will back him if he seriously takes on the Mad Dogs of Wall Street.

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