Colorado Business Litigation Lawyer Blog

In an April 28, 2010 Senate subcommittee hearing, Senator Carl Levin (D-Mich.) grilled Daniel Sparks, former head of Goldman Sachs mortgage department, about an email that Sparks received from Thomas Montag, Goldman’s former head of sales and trading. In the June 22, 2007 email, Montag made reference to a series of mortgage-backed investments Goldman was selling to its customers as one “shi**y deal.” Sen. Levin noted that even after the date of the email Goldman continued to sell the same investments to customers. Quite naturally, Goldman officials didn’t tell those customers that it was a shi**y deal.

Sparks continued to deny that the email said precisely what it meant. Instead, he claimed that the email had to be put into context. Sen. Levin observed that the context was “mighty clear,” and asked Sparks if he was at all bothered by the fact that Goldman continued to sell the investments after June 22 with knowledge that it was a bad (fooled you!) deal for the customer.

If corporate greed makes you wince, in the immediate future you should refrain from watching TV and reading newspapers.

Continue reading "Sen. Levin Knows a Shi**y Deal When He Sees One" »

Here we go again. Another Wall Street giant has been accused of defrauding its investors. Goldman Sachs & Co., a global investment banking and management firm, allegedly failed to disclose conflicts of interest in mortgage investments it sold during the failing housing market. Fabrice Tourre, a Goldman Sachs vice president, has also been charged by the SEC for his involvement. The Securities and Exchange Commission announced the charges last Friday.

According to Marcy Gordon with the Associated Press, Paulson & Co. is the Goldman Sachs client being investigated. The AP identifies Paulson as “one of the world’s largest hedge funds” and reports them as having paid Goldman approximately $15 million in 2007 for structuring the deals. Losses by investors reportedly exceed $1 billion.

The SEC allegations suggest Goldman failed to disclose to investors that Paulson & Co.
played a part in selecting mortgages and were in a position to profit from the waning mortgage values. Investors were told an independent, objective third party selected the securities.

The Goldman Sachs website reported the following statement today: “The SEC’s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation.”

We will follow the saga and continue to report on it.

Continue reading "Goldman Sachs Faces Civil Fraud Charges" »

In Manhattan’s Federal District Court today, 51 year old, Anil Kumar plead guilty to one count of securities fraud and one count of conspiracy to commit securities fraud with Raj Rajaratnam. He also agreed to cooperate with prosecutors in the widening investigation. Mr. Kumar is the 7th person to pled guilty in what some are calling the biggest hedge fund insider trading scheme case in US history.

Mr. Kumar admitted that from 2003 to 2009 he received $2.6 million from Galleon hedge fund founder and billionaire Raj Rajaratnam in exchange for confidential information about clients he was working with to make illegal stock trades.

In order to hide the cash payments, Mr. Kumar admitted that Mr. Rajaratnam opened a Swiss bank account for him under a different name and then funneled the payments to the account, and eventually into Galleon’s hedge funds. Mr. Rajaratnam praised Mr. Kumar for the information he provided, at one point telling him he was, “a hero,” according to prosecutors.

As a result of his guilt plea, Kumar could face up to 25 years in prison. Charges against Mr. Rajaratnam, who earlier plead not guilty, are also pending.

When someone mentions “insider trading”, Colorado residents may think of Joe Nacchio and Jeff Skilling. These gentlemen are examples of highly paid and high powered corporate executives who don’t need to guess at how the shares of their company will be valued. They do not need to guess whether the value of shares will go up or down. They know things the rest of us do not know. For example, they know whether their companies can expect substantial losses in the next quarter. If the forecast is gloomy, they sell their stock now (high) rather than wait (low). They trade stock on the basis of information known to the company insiders.

Last week, though, CBS News reported the story of stock regulators who used confidential and secret information gleaned from their regulation duties to profit and advise family and friends to profit from insider information. Kind of like putting Dracula in charge of the blood bank.

According to CBS, two SEC attorneys are under active criminal investigation by the FBI for trading stocks based upon insider information. The accusations against these attorneys are contained in a report by the SEC Inspector General. It is based upon a review and analysis of e-mail and brokerage records. Ironically, the SEC’s Inspector General uncovered a possible fraud with its own employees but failed to detect the $60 billion dollar Bernie Madoff Ponzi scheme.

One attorney under investigation works in the office of the SEC’s chief counsel and has access to a substantial amount of non-public information. In other words, information known only to the regulators and not the general public. Of course, the dupes in all of this are the average investors.

The other attorney under investigation works in the SEC enforcement division. Each of these attorneys traded in the stock of a large financial services company despite being told by another SEC employee of ongoing investigations of that company.

These two attorneys acted like they were entitled to use this non-public information at the expense of the taxpayers who were paying them. One attorney sent e-mails from his SEC account to his brother and sister-in-law recommending particular stocks. His stock portfolio at one point was valued at $200,000.

As to the other attorney, two months before an investigation of a large health care company, she sold all her stock in the company. Shrewd financial decision or thievery? Also, two days before an inquiry was opened by a colleague in the office next to hers, she sold stock in the oil company subject of the inquiry. Shrewd investment strategy or pure thievery?

The female attorney traded stocks 247 times between January 2006 and January 2008. Her stock portfolio at one time was valued more than $170,000.

One of the sources of information was another SEC employee who told investigators that these two attorneys told her to buy stock in a company, despite their knowledge of multiple ongoing investigations of that company. That was a blatant violation of SEC rules.

Guess what? Both attorneys are still employed at the SEC earning healthy six figure salaries. Of course they deny wrongdoing and may suggest that they were just smart investors. Some court will ultimately determine whether they are smart investors or smart thieves.

Small comfort that the SEC has now hired a compliance officer and has strengthened rules governing the reporting of trades by SEC employees. How can we trust the regulators to uncover criminal frauds like Bernie Madoff when the regulators are busy feathering their own nests with profits from their criminal activities?