Just curious to hear other opinions, but do you think Fabulous Fab’s actions would have been considered a violation of CFA ethical standards? Regardless of your buyer’s/client’s investment sophistication, if you were selling them a product that you deemed trash, is it a violation, possibly of the integrity of capital markets?
yes it is violation. Telling your one client to buy and other to sell is wrong as per CFAI. But in real world, nobody follows ethical rules.
I’m not sure that goldman was trying to tell paulson to buy. Paulson put the package together and Goldman acted as the broker, if I’m not mistaken. Also, I’m not completely clear on how Goldman represented the portfolio (didn’t necessarily say it was bad or good; may have said this is what it is, take your best look at it and make your own decision). Goldman’s cachet, however, may have implied the product was worth a buy.
No doubt, it is a clear violation. pupdawg - lots of people follow the ethical rules, they just don’t make news headlines.
wishiwererich Wrote: ------------------------------------------------------- > Just curious to hear other opinions, but do you > think Fabulous Fab’s actions would have been > considered a violation of CFA ethical standards? > > Regardless of your buyer’s/client’s investment > sophistication, if you were selling them a product > that you deemed trash, is it a violation, possibly > of the integrity of capital markets? It is a violation but not sure whether it falls under Integrity of Capital Market.
Goldman acted as broker. They matched a seller with a buyer. This is what brokers do. Sophisticated parties on both ends. This is no different then when a fund comes to a broker looking to short a basket of stocks in a swap. Goldman also took the equity piece and lost 100mm bucks on it. Will be tough to argue that they misled sophisticated investors on a deal where their interests were aligned. Especially when Goldman held the riskiest peice. The SEC’s case is weak. At most they have a rougue employee making false statement’s via email. I’d be willing to bet that the official offering circular on this deal basically absolves Goldman of any liability to the buyer or seller what-so-ever. They have a team of lawyers over there that are the best in the business at writing and reviewing these documents. I doubt they left the firm hanging out on this one. The whole case is BS. Was it a sleazy trade? Sure. Should deals like this have been legal in hindsight? No shot. But they were legal and it is the SEC’s lack of oversight/ being asleep at the wheel that should be in question and not a broker facilitating a legal transaction. If the SEC was doing its job in the early and middle part of this decade we would probably not be in as severe of a mess as we are now. In fact this whole case is an attempt by the SEC to remedy a disastrous 10 years by pointing the finger at firms whom they failed to regulate. It is also an absurd (though successful) attempt to distract the public from yet another embarrasing failure to act against a giant ponzi artist, 13 years after the fact. The SEC is a total sh#t show. This case has Code of Ethics violations written all over it.
ChrisV Wrote: ------------------------------------------------------- > Goldman acted as broker. They matched a seller > with a buyer. This is what brokers do. > Sophisticated parties on both ends. This is no > different then when a fund comes to a broker > looking to short a basket of stocks in a swap. > Goldman also took the equity piece and lost 100mm > bucks on it. Will be tough to argue that they > misled sophisticated investors on a deal where > their interests were aligned. Especially when > Goldman held the riskiest peice. The SEC’s case is > weak. At most they have a rougue employee making > false statement’s via email. I’d be willing to bet > that the official offering circular on this deal > basically absolves Goldman of any liability to the > buyer or seller what-so-ever. They have a team of > lawyers over there that are the best in the > business at writing and reviewing these documents. > I doubt they left the firm hanging out on this > one. > > The whole case is BS. Was it a sleazy trade? Sure. > Should deals like this have been legal in > hindsight? No shot. But they were legal and it is > the SEC’s lack of oversight/ being asleep at the > wheel that should be in question and not a broker > facilitating a legal transaction. If the SEC was > doing its job in the early and middle part of this > decade we would probably not be in as severe of a > mess as we are now. In fact this whole case is an > attempt by the SEC to remedy a disastrous 10 years > by pointing the finger at firms whom they failed > to regulate. It is also an absurd (though > successful) attempt to distract the public from > yet another embarrasing failure to act against a > giant ponzi artist, 13 years after the fact. The > SEC is a total sh#t show. > > This case has Code of Ethics violations written > all over it. I’m confused by this post. You make the point that Goldman is not culpable, show how the SEC is incapable, and top it off by saying violations are all over the place. Does the ‘sleazy’ imply violation? If you were Fabulous Fab, CFA and you have to come before the judiciary council of the CFA Institute, what do they get you on?
Sorry, let me be more clear. When I say violations are all over the place I’m talking about violations of the Code of Ethics, not necessarily US Securities Laws. This Fabrice Tourre character allegedly broke the law by saying in an email that Paulson was going long the equity peice. Clearly a violation of the law and the Code. Goldman’s documents on the deal do not state anything about Paulson. These are the documents that the GS Mortgage Dept’s management comittee most likely signed off on. No violation of the law on Goldman as a firm here. Goldman’s failure to not properly supervise Fabrice Tourre is probably a violation of the law, but worthy of a slap on the wrist more than a civil law suit. Also clearly a violation of the Code. But when an employee of a firm does something illegal on behalf of the firm, the firm usually is able to absolve themselves of any wrong doing and say the employee acted on his own will. The SEC violated the Code in so many instances by failing to act on criminal activity when they had the evidence to do so (ie Allen Stanford and Bernie Madoff). Letting the derivatives market and subprime mortgage market grow in the way it did was also a giant and costly violation of negligence. Had a CFA charter holder, incharge of the SEC, ignored such blatant illegalities (Ponzi schemes) and neglected to intervene in a market so out of control that it posed major systemic risk, he or she would have violated the Code of Ethics as a Fiduciary to the US, its citizens and investors. Coming out now in such a self-righteous way to punish firms for business practices that the SEC themselves should have regulated is disingenuous and too little too late. “Sleazy” does imply a violation. What’s sleazy about this trade is Tourre. If he was brought before the CFA Ethics comittee they would nail him on material mis-representation for his email to ACA stating Paulson’s equity interest. Goldman would be nailed by the CFA for not propely supervising its employees but would only be slapped on the wrist in a court of law unless there was some smoking gun that it’s management comittee approved Tourre’s email. If you are a broker though and a customer comes to you with a trade and you have a sophisticated counter-party who is a leading expert in that market willing to take the other side of that trade, it is not illegal to facilitate that trade regardless of your view of the market.