When the Securities and Exchange Commission voted to file its enforcement action against Goldman Sachs, the two Republican commissioners voted against it, reported Kara Scannell in her Wall Street Journal article, “SEC Split on Party Lines Over Goldman Case.”
According to the article, the five-member commission held a lengthy meeting on whether to file the civil-fraud case against Goldman, and ultimately voted 3-2 in favor.
According to the SEC’s complaint, Goldman deceived clients by selling them a CDO whose mortgage-backed securities had been selected, at least in part, by hedge-fund king John Paulson, who was bearish on the deal and expected to profit on a plunge in housing prices. That deal was approved by senior Goldman executives, including firm’s mortgage and credit managers and attorneys, according to the article.
While Goldman is denying liability, people in a position to know are not buying it. The WSJ article points out: “One part of Goldman’s defense has been that it lost $90 million in the transaction, arguing that it ‘surely didn’t wish to structure an investment in which we lost money.’ In fact, the firm never intended to buy any of the deal; it just couldn’t sell all the instruments to other investors?hence the loss, say people familiar with the matter.”
So, what were those two Republicans, Kathleen Casey and Troy Paredes, thinking? The WSJ says those commissioners didn’t respond to repeated requests for comment.
In February, the two Republicans reportedly voted no in a 3-2 vote approving curbs on short selling that drove down some shares in the financial crisis. Mr. Paredes said that rule was “rooted in conjecture.”
Meanwhile, Goldman may be required to return TARP funds that passed through AIG if the insurer sold Goldman credit default swaps based on fraudulent conduct by Goldman. Some in Congress are asking the SEC to force Goldman Sachs to disgorge TARP money it received from AIG on those swaps. Also, government-controlled AIG was considering such claims against Goldman and other Wall Street banks even before the SEC’s action against Goldman was filed according to the article.