The SEC’s case against Goldman Sachs, in which the investment banks is charged with fraud, raises a sea of questions, ranging from: What defense will the company use? How will the case affect Goldman’s business and reputation? What will the legal precedent be for dealing with clients? But the at the core of what promises to be a legal thicket is a rather simple narrative that demands a simple answer. James Stewart in today’s Wall Street Journal explains:
Goldman hasn’t disputed the basic facts in the SEC’s narrative: (1) that the company allowed its client Mr. Paulson, who famously made billions betting that subprime mortgages would default, to play a role in the selection of a portfolio of the worst imaginable subprime mortgages that would be packaged into a collateralized debt obligation, and (2) that the bank failed to disclose to clients to whom it sold those CDOs that it had, in effect, let the fox into the henhouse. Goldman claims its sophisticated clients wouldn’t have cared about such information or considered it important, but if that’s the case, why did Goldman conceal it? Goldman collected millions of dollars in fees from Mr. Paulson, who bet against the doomed securities, and from the clients who invested in them.