Legal News

On Goldman v. SEC: Goldman?s Strategy Starts to Take Shape

By Ashby Jones

Let’s get you caught up on the latest in the Goldman v. SEC case:

Reader beware, it’s buyer beware. There may indeed be cracks for the SEC to exploit in Goldman’s caveat emptor strategy, but the signs point to their jumping on and riding it hard.

After all, reports Bloomberg’s William McQuillen and Patricia Hurtado, it’s worked before. Goldman, reports Bloomberg, “is following a well-traveled path.” Two other banks, Merrill and UBS, have won dismissal of claims that they misrepresented the risks of complexly structured assets by saying the buyers were sophisticated enough to know what they were getting into.

Mr. Tourre, step onto the curb. There might be a bus approaching. Goldman announced it recently deregistered Fabrice Tourre, the employee charged with fraud by the SEC, with the U.K.’s main financial regulator.

A Goldman spokeswoman said they deregistered Tourre because he’s on indefinite paid leave, and therefore won’t be interacting with Goldman’s clients.

But is it a sign Goldman might be distancing itself from Tourre, preparing to throw him under the bus? Maybe, write Bloomberg’s Christine Harper and David Scheer, who focused on language used by Goldman’s GC Greg Palm in a recent conference call.

Thomas Ajamie, a defense lawyer in Houston, told the WSJ “it’s too soon to know” how the relationship between Goldman and Tourre will progress, but that placing someone on leave “is sometimes the first step” to a company distancing itself from an employee also accused of wrongdoing.

Others were less sure. “The timing is all off,” said Matthew Farley, a securities lawyer at Drinker Biddle, referring to the fact that Goldman has known about the SEC’s interest in the case for some time. “Goldman’s lawyers have had a year and a half to look at what happened and if what Tourre did was inappropriate. Had they wanted to cut him loose, they would have done it sooner.”

Goldman declined to comment on its positioning vis-a-vis Tourre.

The case could stay civil. In its earnings conference call on Tuesday, Goldman indicated it didn’t think criminal charges were on the way; so far there’s been no contact from the Department of Justice.

John Paulson is filthy rich. But he’s not invulnerable. And so he’s going on the offensive to assure investors that his firm will emerge from the situation unscathed. Again, Paulson, who helped select the mortgages that got baked into the Abacus product at the heart of the lawsuit, hasn’t been accused of wrongdoing by the SEC.

Full post as published by Law Blog - WSJ.com on April 21, 2010 (boomark / email).