One who intends to leave others better off for his having existed.

12/25/14

The SEC colluded with banks on CDO prosecutions

"The SEC filed its case against Goldman and Tourre on April 16, 2010. Three days later Goldman reached out with a $500 million settlement offer, according to an email that Reisner sent Khuzami. Although that proposal was close to the final payment, it took another three months to announce a settlement. As Khuzami described to Kotz, Goldman wanted a global settlement that resolved not just the Abacus investigation but the SEC’s probes into roughly a dozen other Goldman CDOs.

Khuzami didn’t want to give Goldman that public victory. When the SEC and Goldman announced on July 16, 2010, that the investment bank would settle the Abac­us case for $550 million, the SEC said in a press release that the settlement “does not settle any other past, current or future SEC investigations against the firm.”

Khuzami was determined that Goldman’s payment only be linked to ABACUS. “This was not a $550 million settlement for 11 cases,” Khuzami told Kotz. “We may tell Goldman that we are concluding our investigations in these other matters without recommending charges, but that doesn’t mean we’re settling them. And that was an important point for us, because we didn’t want them out there saying, you know, they settled 12 CDO investigations for an average of $30 million each, and, you know, didn’t [Goldman] get a great deal.”

Yet in its statement on the Abacus settlement at the time, Goldman said that the SEC had concluded a review of other CDOs and did not anticipate recommending claims for now."

http://blogs.reuters.com/felix-salmon/2014/04/09/yes-the-sec-was-colluding-with-banks-on-cdo-prosecutions/
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"The tough part of the negotiation was not over the Abacus fine — it was over the question of whether the SEC, with the Abacus prosecution successfully under its belt, would then go after Goldman for a dozen other deals which were functionally equivalent.

The answer was a clear no: Goldman might be equally culpable for 11 other deals, but the SEC quietly assured Goldman — but not the public at large — that none of those deals would result in any charges.

And with the Goldman deal now public knowledge, we can assume that the same nod-and-a-wink deal was struck with all the other one-and-only-one CDO bank prosecutions: Citigroup, JP Morgan, Merrill Lynch (which evidently included Bank of America), Mizuho Securities, Wachovia, Wells Fargo, UBS. Add them all up, and I wouldn’t be surprised if there are 100 unprosecuted CDO deals out there, all of whom had victims just as deserving as the ones who got paid out on the prosecuted deals...

...So there’s a real scandal here: firstly, the SEC was not being fully honest with the public about the deals it was cutting. Secondly, the SEC failed to stand up for CDO investors it should have fought for. Thirdly, the SEC tried to make it look as though it was levying massive fines for single deals, when really the settlements were omnibus deals covering some unknown quantity of CDOs.

Now that this information is public, the SEC should apologize to all of us for its behavior, and promise not to collude with Wall Street again. If it doesn’t, that’s a clear sign that Wall Street’s most salient watchdog is still as captured as ever."

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