Tan Kin Lian's Blog: US Securities Exchange Commission sues Goldman Sachs

Sunday, April 18, 2010

US Securities Exchange Commission sues Goldman Sachs

The US Securities and Exchange Commission has taken the bold step to sue Goldman Sachs for fraud in connection with the creation of complex financial products that are sold in the market. They involve the packaging of the sub-prime mortgages into collateralized debt obligations and credit default swaps. One argument put forward by the SEC is that Goldman Sachs knew that the sub-prime mortgages were already in trouble at the time that these products were created.

This is only the first step. Many other investment banks were also involved in creating similar products and may face similar actions by the SEC.

Our equivalent of the SEC is the Monetary Authority of Singapore. I hope that our MAS will also see if there is scope for similar actions to be taken in Singapore in respect of the complex products that were sold here. These products, such as the Mini-bonds and Pinnacle Notes, have caused huge losses to the retail investors in Singapore.

Tan Kin Lian

News clippings:
http://dealbook.blogs.nytimes.com/2010/04/16/s-e-c-sues-goldman-over-housing-market-deal/
http://www.reuters.com/article/idUSTRE63F3LM20100416

28 comments:

Anonymous said...: I remember my days in Secondary school when we encounter similar situations such as these.

The whole class will sing out loud in unison, "Why are we waiting?"; April 18, 2010 9:14 AM
Anonymous said...: I think the worst outcome that can happen here is MAS may just impose a fine on the FIs and case closed.

Meanwhile retail investors who lost their money can continue to fight their cases as usual.

By the way those FIs are still pushing their structured and what not products at the branches, even when customers only want a savings or FD account.

You can also see at the branches that they allocate bigger spaces for more cubicles with desks and chairs (to sell products) and reduce their queue counters. In some branches they even put their queue counters far away from the entrance.; April 18, 2010 9:26 AM
Anonymous said...: April 18 2010 9:26am

Do you really believe MAS will impose a fine and close the case after having said you went in with the eyes open?; April 18, 2010 12:07 PM
Anonymous said...: someone has to sue MAS for not regulating.; April 18, 2010 3:25 PM
Anonymous said...: today I saw a new approach by UOB at FuLu Shou Complex.

Spot-the-different game. With 3 to 5 correct answers [with hint], customer will win a price. Then they are asked into go to the branch to collect their price. Then they don't seems to come out. Why?

Inside the branch office, they Kana left and right on new products sale pitch...For a lousy cheap prize, these old folks probably don't what hit them in UOB branch....Worst is when they come out buying some lame investment products.; April 18, 2010 4:29 PM
symmetrix said...: MAS has already imposed suspension from selling structured products on the FIs. Some FIs have come out of their penalty period, and are now free to continue their "dirty tricks". Many, if not most, of the investors have by now been compensated reasonably adequately.

With this scenario, I doubt MAS will do anything more. The case can be considered closed.; April 18, 2010 5:38 PM
Anonymous said...: MAS already "punished" the FIs -- they banned some of them from selling structured deposits for 1-2 years, when already nobody wanted to buy such products.

I don't think MAS even fined any one of the FI a single cent. At most just a few kuching kura dollars.

So far, the most aggressive regulator is UK's FSA. It has already fined a few banks and FIs tens of millions of pounds each, for mis-selling and mis-representation. Imagine MAS wallop DBS with $50 million fine?

Now, some of the local banks and FIs already finished their ban sentence and are now aggressively pushing such structured deposits again.

Frankly I don't think our govt wants to give the banks and FIs any difficulty. Otherwise CEO of TH will be screaming at her husband for causing Temasek's shares in DBS, UOB, OCBC, Std Chartered, Hong Leong etc to drop by 20% overnight!

What to do? Help the people and cause your KPIs to fall (portfolio returns and GDP). Don't help the people, make some of them angry and will it endanger re-election prospect? (not likely) Conflict of interest huh?!?; April 18, 2010 5:47 PM
Anonymous said...: """"Many, if not most, of the investors have by now been compensated reasonably adequately.""""

Hi , Mr. Are u sure??

Don't add insult to injury ok???; April 18, 2010 6:54 PM
Anonymous said...: My dear Singaporeans.
We should look at this as a great opportunity to attract a premiere world class bank to set up HQ operations here in Singapore.

- Singapore offers regulations with a light touch
- business friendly culture
- We also have FIDREC and CASE to protect the interest of banking customers

What more can a bank like Goldman Sachs ask for?

- Let's hope our elite scholars at EDB will prostrate themselves and attract yet another quality investor to come to Singapore.

- With the right incentives, Goldman Sachs may even want to set up their Global HQ right here in Singapore.

This is a fantastic opportunity that has landed on our laps. Let's not blow it. The thought of my children selling complex bonds to pension funds all over the world sends shivers of anticipation down my spine.; April 18, 2010 7:06 PM
Anonymous said...: It is a conflict of interest, even a goondu knows it. Hurting a few thousand investors is peanuts in the election game. These investors got scolded like schoolchildren :
they went into such toxic products with their eyes open, even though they are sold under concealed information fraud. It is better to sacrifice these investors than to jeopardize Temasek's investments in these FIs.
And when these CEOs of our SWFs went in with their eyes open, and in the process lost billions, they put the blame on others, they themselves were never in the wrong.; April 18, 2010 8:52 PM
Anonymous said...: There is a difference between MAS taking action against local FIs and against the creators/issuers of these toxic products(Morgan Stanley & Merril Lynch). MAS should act like SEC in USA but then they have to take action against DBS also for creating the HN5 which also has CDO. This is like letting own blood so most likely MAS will be thick-skinned and bury their conscience.; April 18, 2010 9:56 PM
Anonymous said...: HI, IT is time for our Pinnacle note holder to sue Morgan Stanly with American law firm's help. Please join in our class action by send your interest to Mr Tan's email.; April 19, 2010 8:24 AM
Anonymous said...: Here's an insightful comment from a USA blogger about Goldman Sachs (GS). Highlights the long tentacles of these "big" banks.

QUOTE:
" But here's the really ironic part of the GS story. GS has market making operations. Does anyone else see the irony in this being announced on options expiration Friday?

Let me tell you that prior to Wednesday, the largest daily spread of equity calls traded vs. equity puts traded was 1.5 million contracts. After Intel (INTC) reported better-than-expected earnings on Tuesday, the spread of equity calls vs. equity puts skyrocketed to 2.0 million contracts on Wednesday.

On Thursday, that spread was 1.8 million contracts.

In other words, options traders have NEVER been so optimistic about the short-term market prospects and when everyone is buying up those calls, who is on the other side of the trade?

Well, it's one of the responsibilities of the market maker - to provide liquidity in the marketplace. My proprietary relative complacency ratio hit 29% by Thursday's close. This is a useful sentiment indicator based on equity options trading and it marked the second consecutive day over 25%, which are the only two days it's ever been that high.

Relative complacency generally marks tops. I've never seen the market print extreme readings like the ones on Wednesday and Thursday.

So now let's discuss the timing of the SEC's Friday announcement.

While GS likely stands to be slapped on the wrist at some point in the future for these alleged violations, I can only imagine how much the timing of the SEC's announcement cost all those call buyers on Wednesday and Thursday and helped turn profits at market making units like Goldman Sachs'.

Let me just guess that it's more than $1 billion and leave it at that. I'm calling it the 2010 financial bailout, as if they needed another."
UNQUOTE; April 19, 2010 9:24 AM
Anonymous said...: Alot of organisation are inter-related to the govt. Unless they become independent bodies, it will be tough to bring the financial institutions to justice. Singaporeans are also very cheapskate. If you dangle lucky draw or free gift, they will fall for anything.; April 19, 2010 9:57 AM
jamesneo said...: To April 18, 2010 7:06 PM, i hope you are saying in terms of jest. If not i pray that what you say never happen, Goldman Sachs, JP Morgan Chase and others are financial terrorist which will hijack your economy by placing lots of naked shorts and manipulating your market and government. The day we let these players overwhelm our local banks is the day we will end up like US with lots of debt and the people paying for it through enormous taxes and GSTs.; April 19, 2010 10:30 AM
Anonymous said...: While it is easy for us, the retail investors, to see the different between wrong and right, it is either tough for MAS to see the different [political link] or they just ignorant to know the different. Since Ministers' ignored our anger of their inactions and high salary, I suggest we support them and give them what they want i.e. raise their salary DOUBLE or TRIPLE for a "Job" super well done on protecting investors and allowing lots of toxic products into sgp.; April 19, 2010 11:23 AM
Australian Lawyer said...: Yes, the provisions of the Exchange Act which the action was brought under are similar to the consumer protection legislation in some other jurisdictions in Australia where there is the Trade Practices Act. The essential allegation is that Goldman Sachs engaged in conduct which was misleading and deceptive.; April 19, 2010 11:51 AM
Parka said...: Even more discussions here

http://news.ycombinator.com/item?id=1270775; April 19, 2010 12:57 PM
Anonymous said...: From the lucky draw sales tactic, how cme I get the impression that the FIs haven't learnt their lesson, or did they learnt the wrong lessons? MAS punishment not heavy enough the last time, izzit?

This lucky draw sales tactic, did I come across somewhere before.... hmmm... Oh yes, I sometimes get calls from timeshare properties, MLM companies, etc...; April 19, 2010 4:29 PM
Anonymous said...: First, the Big Three have large exposures to property loans. A property bust would definitely seal their fate of bankruptcy and government may have to step in to rescue them. See what happened to Japanese banks 20 years ago.
Second, the interests paid by banks is not enough to justify the risk of bank failures (at 0.1% for savings & checking accounts). Only $20,000 is protected under the deposit insurance scheme. Better to keep in CPF and pay off outstanding loans if one is cash rich, and donate to the needy.
Third, it is safer to save with Malaysian banks. They have lower exposure to property loans except maybe MayBank. They also have strong and stable assets in resource and commodity rich Malaysia. The Malaysian ringgit policy seems to be on an appreciation trend. My choice is RHB Bank and CIMB Bank, followed by MayBank.

Arm66; April 19, 2010 5:41 PM
Anonymous said...: This is just another 'wayang' (show).

How many of you still put money with Citi, JP, Goldman, UBS? They are all in the same league altogether.

In fact, the general mentality is: if their share price drops, it is buying opportunity.

As far as the consumer is concerned: if the bank makes money for me, directly or indirectly, who cares if it cause other investors to lose money?

I guarantee after 6 months, it is only going to boil down to just a fine (probably about 10~20 million) and matter closed. Life goes on, people move on, markets continues on.; April 19, 2010 7:34 PM
Anonymous said...: MAS worship all these investment crooks like God.; April 19, 2010 9:00 PM
Anonymous said...: I don't understand why we are criticizing Goldman Sachs (GS).

Former US Treasury Secretaries Robert Rubin and Henry Paulson were former employees of GS.

Just imagine the values, training and know-how GS can impart upon our scholars and university undergraduates after an industrial attachment or employment with GS.

Then imagine these GS alumni going on to assume leadership of our Singapore institutions. Very soon, the rest of our workforce will also absorb and adopt these new cultural DNA and best practices. Singaporeans are very good at "follow the leader" which we learnt from our "creative thinking courses".; April 20, 2010 7:40 AM
Anonymous said...: Few people are aware of the Bilderberg Group. Considered to control the world's economy, politicians and financial institutions. Goldman is just a pawn in the game. The master is the Bilderburg. Their key objective is to control the world's money. Seek and you shall find; according to the words of Christ Jesus.

http://www.youtube.com/results?search_query=bilderberg+exposed&aq=5

Arm66; April 20, 2010 9:55 AM
Anonymous said...: The safest regional bank is Maybank.
When the financial system crashes, thet is. The Malaysian Govt will bail Maybank out. In Singapore bank deposits are insured up to $20,000 only, really peanuts in today's scenario, an insult to the depositors, that is. This Govt will let banks fail, but we are not so sure that fate would fall on DBS also, conflict of interest that is. Remember there is no consumer protection here. Better send money out to invest elsewhere.; April 20, 2010 12:31 PM
Anonymous said...: Now AIG is also considering sueing GS.

http://www.channelnewsasia.com/stories/afp_world_business/view/1051326/1/.html

Germany and Britian is also considering.

With all this going on, does anyone has any doubt that these investment banks are truely out to deceive Asia investors. Even KM lawyers from America took a while to understand Morgan Stanley Pinnacle Notes.

I hope our local people finally understand that the Notes are design to cheat. The Creator like Lehman Brothers, purposely trained FAs/RMs wrongly and hid lots of important information and the FA/RM in turn made use of the trust of their clients to generate interest.

Is DBS High Notes the same? Are all the 1,400 victims guilty of greed or they are truely being told that these are bonds & as same FD?. I believed they are just unlucky because DBS is owned by Temasak which in turn owned by Govt.; April 20, 2010 4:37 PM
Anonymous said...: Aren't it just a show? US has to find a scapegoat to pinpoint, to distract the people from their real economy problems. 9.7% Unemployment!! And also to tell the commoners that Mr Obama is working hard to solve the problems when his reputation with the US citizwn is dropping.; April 24, 2010 3:12 PM
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Sunday, April 18, 2010

US Securities Exchange Commission sues Goldman Sachs

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