Why is this not conspiracy to defraud?
Goldman Sachs has been accused of fraud by the SEC, but its apparent partner in fraud will emerge far richer and unscathed.
… Paulson & Co., made a $3.7 billion profit by betting against the housing market as it nose dived in 2006 and 2007. On Friday, the Securities and Exchange Commission disclosed that $1 billion of those profits came in an insider deal in which Goldman Sachs allegedly let the company select subprime securities for a complicated offshore deal and then bet on their failure.
So, Paulson fully expected the securities it chose to tank. It also fully expected that Goldman would be selling those securities to suckers around the world, and it must have known, should have known, surely knew, that Goldman would not be telling those investors that the securities were expected to fail.
If I enter into an agreement that requires the other party to defraud others-that cannot succeed unless others are defrauded- why am I not as liable as the person who actively defrauds? I personally wouldn’t think twice about suing both parties if I had an analogous situation come my way. And yet, according to the SEC:
SEC officials said Friday that Paulson was not charged in the Goldman case because the company did not mislead investors.
No, it simply entered into an agreement that could not succeed unless someone else misled investors. Someone who had explicitly or implicitly promised to do just that.
Perhaps this is some sort of arcane jurisdictional issue at the SEC. Perhaps it only has jurisdiction over individuals that actually and actively make representations to investors. If so, then one can only hope this loophole would be addressed in the financial reform package.
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