Goldman Sachs Trader Conviction: Hold the Cheers
by Stephen Lendman
On August 1, Goldman’s Farbice (“Fabulous Fab”) Tourre was convicted on six of seven counts.
They involve “making materially misleading statements and omissions in connection with a synthetic collateralized debt obligation (CDO) GS&Co structured and marketed to investors.”
They’re about being “directly or indirectly engaged in transactions, acts, practices, and a course of business that violated Section 17(a) of the Securities Act of 1933, 15 USC 77q(a) (“the Securities Act”) and Exchange Act Rule 10b-5, 17 CFT 240.10b-5.”
“The Commission (sought) injunctive relief, disgorgement of profits, prejudgment interest, civil penalties, and other appropriate and necessary equitable relief from both defendants.”
The verdict came down as follows:
“1. With respect to the SEC’s claim that defendant Fabrice Tourre violated Section 17(a)(1) of the Securities Act, we, the jury find defendant Fabrice Tourre liable.”
2. With respect to the SEC’s claim that (he) violated Section 17(a)(2) of the Securities Act: liable.
3. With respect to the SEC’s claim that (he) violated Section 17(a)(3) of the Securities Act: liable.
4. With respect to the SEC’s claim that (he) violated Section 10(b) of the Securities Act and Rule 10b-5(a): liable.
5. With respect to the SEC’s claim that (he) violated Section 10(b) of the Securities Act and Rule 10b-5(b): not liable.
6. With respect to the SEC’s claim that (he) violated Section 10(b) of the Securities Act and Rule 10b-5c: liable.
7. With respect to the SEC’s claim that (he) violated Section 20(e) of the Securities Act: liable.
Dated August 1, 2013.
On August 2, the Wall Street Journal headlined ” ‘Fab’ Trader Liable in Fraud,” saying:
Jurors found Tourre “liable for defrauding investors in a deal that imploded during the financial crisisâ€¦” He intentionally misled investors.
Jurors “determined he had aided and abetted” Goldman fraud. They profited hugely doing so. That’s how Wall Street works.
A Tourre spokesman said the case remains ongoing. At issue is what penalty will be imposed. Weeks may pass before it’s known. They’ll pale compared to what’s deserved. On appeal it may be reduced.
Tourre and Goldman faced civil charges. Criminal penalties aren’t involved. Prison time won’t follow. Billions of dollars were stolen. Grand theft continues. It does so in multiple forms. It’s standard Wall Street practice.
Theft runs the gamut. Shoplifting is petty theft. Larceny involves property valued under $500. Larger amounts are grand theft. Wall Street malfeasance should be called the grandest of grand theft writ large.
Minor offenses land ordinary people in prison. Terms up to 10 years are imposed. Multiple transgressions involve longer sentences. Three-strikes laws can imprison people for life.
Not on Wall Street. It’s anything goes territory. Government complicity permits it. Money power runs America. What it says goes. Accountability rarely happens. Penalties are hand slaps. They hardly matter. They don’t deter crime.
Goldman makes money the old-fashioned way. It steals it through fraud, grand theft, market manipulation, front-running, pump and dump schemes, scamming investors, influence peddling, running Washington, and getting bailed out at taxpayers expense when needed.
It’s a crime family. It’s not a legitimate bank. It’s connected to other Street players. They complicit with corrupt politicians.
Goldman was an original Tourre trial defendant. In July 2010, it settled for pennies on the dollar. It did so without admitting or denying wrongdoing. It acknowledged knowing promotional materials lacked complete information.
It paid a $500 million dollar fine. It hardly mattered. It was pocket change. It represented four 2009 revenue days. No one was jailed or fined.
At issue was fraudulently selling toxic subprime residential mortgage-backed securities (RMBS). In 2007, unwary institutional investors bought them. They did so when America’s housing market headed south.
The so-called Abacus 2007-AC1 deal involved Goldman’s Jonathan Egol and hedge fund manager John Paulson. According to SEC’s complaint, Paulson wanted to bet against toxic derivative securities.
They were subprime home loans. They were repackaged into bonds. They were rated “BBB.” If loans defaulted, they’d lose out first.
Goldman knew German Bank IKB would likely buy what Paulson wanted to short. It would only do so if an allegedly neutral party chose mortgage securities.
Goldman knew most investment managers were willing to work with Paulson. He was right most of the time.
In January 2007, Goldman approached ACA Management LLC. It’s a bond insurer. It counterparties in structured financial products. It agreed to work with Paulson. It helped select securities he wanted to short.
His plan wasn’t divulged. He wanted high-risk securities for maximum returns. Goldman’s marketing materials omitted saying he shorted over $1 billion worth of debt obligations. Goldman got about $15 million in fees.
It structured a deal called “synthetic collateralized debt obligations.” They were designed to help Paulson and IKB get maximum exposure.
In April 2007, IKB bought $150 million worth of junk subprime mortgage debt. ABN Amro assumed $909 million. In May, it bought ACA Financial Guaranty Corp. protection.
Months later, IKB lost almost its entire investment. In late 2007, a consortium of banks (including Royal Bank of Scotland – RBS) acquired ABN.
In August 2008, RBS unwound its ABN Abacus position. Goldman earned about $840 million. Paulson profited most. He made about $1 billion. He made billions more in similar deals. Who said crime doesn’t pay?
Wall Street’s infested with criminals. Grand theft is official Street policy. Goldman and other giants profit hugely. Only Tourre was prosecuted. SEC ignored others involved.
Goldman CEO Lloyd Blankfein wasn’t named. He and other key executives oversaw major deals. They shorted products investors were advised to buy.
Around 99% of mortgage-backed securities went sour. Investors weren’t aware they were scammed.
Criminal and civil fraud differ in the level of proof required. The former needs a “preponderance of evidence.” The latter must prove intent. It must be “beyond a reasonable doubt.”
SEC’s history is deplorable. Industry insider Mary Schapiro formerly ran it. Obama appointed her. She served until mid-December 2012.
In January 2013, Obama nominated Mary Jo White. She’s a consummate insider. Getting tough on crime’s not her mandate. She’s part of a corrupt system.
She could prosecute Goldman. She could target its top executives. She could charge other Street players on multiple grand theft counts. Obama’s justice department could file criminal charges.
Corporate crooks aren’t prosecuted. Exceptions prove the rule. Obama imprisoned no one. Whitewash is policy. Evidence doesn’t matter. Stealing is Wall Street’s pastime. It’s longstanding policy.
Money power runs things. It does so fraudulently. SEC and Justice Department officials abstain. They do nothing to deter it. Tourre’s conviction signifies nothing. Business as usual continues.
Goldman issued a statement saying:
“As a firm, we remain focused on being more transparent, more accountable, and more responsible to the needs of our clients.”
It does so by stealing them blind. Former bank regulator Bill Black says the best way to rob a bank is own one. He calls Goldman representative of corrupt crony capitalism.
Fraud is standard practice. Regulators don’t regulate. Dishonesty is standard practice. The grander the grander theft, the easier it is to avoid prosecution.
Unwary investors get scammed. Goldman calls them “muppets.” It’s free to steal again. So are other Street players. They’re predators.
They play by their own rules. They wage financial war. They do so for profit. They want all they can get. How doesn’t matter.
They pillage investors, communities and countries. No scheme’s too outrageous not to pursue. Goldman’s considered the savviest Wall Street firm.
It largely controls the New York Fed mother bank and US Treasury. It does so like GS subsidiaries. It’s a walking conflict of interest.
On Wall Street, past is always prologue. New scams follow old ones. Washington acts as facilitator. Regulators look the other way. Business as usual continues. It’s Wall Street’s way. It’s always been this way.
Stephen Lendman lives in Chicago. He can be reached at firstname.lastname@example.org.
His new book is titled “Banker Occupation: Waging Financial War on Humanity.”
Visit his blog site at sjlendman.blogspot.com.
Listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network.
It airs Fridays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.