November 17, 2010
Posted in: Risky Investments | Collateralized Debt Obligations | Goldman Sachs
Goldman Sachs cannot escape the mess stemming from its disastrous collateralized debt obligations, which is certainly good for investors. As a result of the latest SEC probe, the broker-dealer will pay an additional $650,000 for failing to disclose that two of its employees were under serious investigation.
Former trader Fabrice Tourre, known to friends and the media as "Fabulous Fab", had allegedly received a Wells notice in 2009, officially notifying him he was under investigation from the SEC. Though brokers are required to update agency records within 30 days, so that investors have a greater chance of learning the news, Tourre's records at Goldman Sachs would remain unchanged until May 3 of this year.
This means even though the SEC filed suit against Tourre on April 16, accusing him of defrauding investors, many of the general public may have been unaware of his previous activities until weeks later.
Another employee, not named in the SEC's complaint, also had incomplete regulatory records with his broker-dealer.
In July Goldman Sachs agreed to pay $550 million and change its sales and marketing practices to settle an SEC dispute over the collateralized debt obligation offering known as Abacus. In September the United Kingdom arm of Goldman Sachs was fined an additional $27 million by British regulators for failing to disclose the SEC's investigation.
Earlier this month, a judge rejected Tourre's motion to dismiss all of the SEC's pending charges, after the broker had argued that the Goldman Sachs deal involving collateralized debt obligations took place overseas. He will too face trial for his activities as Goldman Sachs.
We should expect investors, even small investors, to do their due diligence research before settling on a broker-dealer. But it is not reasonable for investors to come to the correct conclusions on incomplete, or false information.
In this case, every step along the way, the general public has been misled, and it is good to finally see accountability for the deception.
