Goldman Sachs and SEC Fraud Allegations
The SEC case against Goldman Sachs is lining up to be both a political and economic showdown as the Wall Street regulator looks to take on what is often considered on of America’s dirtiest investment banks. The SEC alleges that Goldman committed fraud by selling securities as a solid investment, even when the counter-party was betting against them.
Anyone who knows Goldman’s history knows that Goldman Sachs probably shorted its own stock ahead of the news. Although slightly laughable, as Goldman would probably be the only corporation to do it, I would completely expect it from Wall Street’s most trashed firm. It has now been made public that Goldman may have traded its own stock, knowing full well a $5 billion investment from Warren Buffett was coming at the height of the financial crisis. Rajat Gupta, the person involved in leaking the investment, has stepped down as director, only increasing the interest in Goldman’s dealings.
Buffett Speaks Out
Warren Buffett has already come out to make a statement that he expects Goldman to continue on and be found not guilty of fraud. This is generally out of the comfort zone for a usually quiet Buffett and in my opinion shows that he’s worried about his investment. The fraud case against Goldman looks relatively weak, with the investigation passing by a 3-2 margin. However, insider trading or other charges could emerge if Goldman did, in fact, trade its own stock based on information not yet public.
This is Going to Get Ugly
The SEC showed some courage, or just wanted political points, when it brought up the most recent case against Goldman, especially with only a 3-2 vote to back it up. Goldman Sachs is notorious for having government in its back pocket with many Goldman alum finding their way at the Federal Reserve or in the US treasury. Hank Paulson, former Treasury Secretary under the Bush administration, generated what was perhaps one of the best of the bailout deals for Goldman Sachs, his former employer.