Sam Antar, a convicted felon who “helped mastermind one of the largest securities frauds uncovered during the 1980s” as CFO of Crazy Eddy is asking the question: Did a Clever SEC Bait Goldman Sachs Into Compounding Its Legal Problems?
The Cover up is more Dangerous than the Underlying Crime
Back in the day, I learned that the most dangerous time for a criminal is the cover up of a crime and not the execution of a crime. Public statements made by Eddie Antar’s father and brothers in defending their actions were later successfully used against them in civil and criminal proceedings. In pursuing the Antar’s, Simpson learned that criminals make hasty decisions to defend their actions which later land them into deeper legal trouble.
Goldman Sachs Makes Huge Error in After Market Response to SEC Lawsuit
Rule 10b-5 prohibits public companies, their officers, and employees from making:
…any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person….
The SEC claims that Goldman Sachs and Fabrice Tourre violated Rule 10b-5 by failing to disclose material information about Paulson’s role in selecting certain underlying mortgage securities and that Paulson was betting against the viability of those securities by taking a short position against them.
The Goldman Sachs press release starts out by saying:
…We are disappointed that the SEC would bring this action related to a single transaction in the face of an extensive record which establishes that the accusations are unfounded in law and fact.
As I will describe below, at the very least, the SEC’s allegations are founded in law under Rule 10b-5, contrary to the company’s representation to investors in its press release. In addition, the press release misleads investors about the SEC complaint, too. Therefore, the Goldman Sachs press release may subject the company to additional Rule 10b-5 violations.
Goldman Sachs defended itself by claiming that the allegedly defrauded investors are “sophisticated” and was provided with “extensive information” about the underlying mortgage securities: ….
Sophisticated investors are defrauded all the time. Even if “sophisticated investors” are buried with “extensive information”, the omission of one key piece of material information by itself, such as concealing Paulson’s role in selecting the underlying mortgage securities and that Paulson was also shorting those same securities, can give rise to a securities law violation.
As I detailed above, under Rule 10b-5, a public company cannot
…omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading….
Therefore, Goldman misled investors in its press release when it stated that,
…the accusations are unfounded in law….
The SEC’s allegations are clearly founded on Rule 10b-5…..
The Goldman Sachs press release is materially misleading to investors and it can give rise to additional securities law violations under Rule 10b-5. The SEC complaint has a very sound basis in both fact and the law under Rule 10b-5, contrary to the Goldman Sachs press release which claims that “the accusations are unfounded in law and fact.”
As a criminal I learned that the cover up is always more dangerous than the crime. Whether or not Goldman Sachs knew the SEC lawsuit would be filed on Friday, the company made key errors in hastily responding to the SEC complaint that may come back to haunt the company. Sometimes it’s better to just shut up!
Goldman Sachs simply lost its patience and went forward with emotion instead of logic in responding to the SEC. They should have waited until Monday.
To make matters worse, Goldman Sachs is circling the wagons around Fabrice Tourre which I believe is a big mistake. The company should have simply issued a press release saying:
Goldman Sachs does not comment on any current litigation and will address any issues in court proceedings.
In addition, Goldman Sachs could have said that:
The company takes any allegations of impropriety seriously and is placing Fabrice Tourre on leave pending the outcome of the SEC litigation.
In any company, especially a company that is the size of Goldman Sachs, there are always some employees who bend the rules or break the law and end up getting a company in legal trouble. By circling the wagons around Fabrice Tourre, Goldman Sachs raised the ante from a single employee issue involving a certain corporate transaction to a corporate wide issue involving the entire company. A very dumb move!
The public relations people and attorneys representing Goldman Sachs will get rich as they suck the company dry with fees and lead them down the river. That’s what happened to the Antar clan at Crazy Eddie as Richard Simpson rightfully “deep-sixed” them too.
About the author: Sam E. Antar
I am a convicted felon and a former CPA. As the criminal CFO of Crazy Eddie, I helped Eddie Antar and other family members mastermind one of the largest securities frauds uncovered during the 1980s. My responsibilities at Crazy Eddie included skimming, money laundering, insurance fraud…
That is certainly an interesting viewpoint from an admitted and convicted felon. If what he says is true, (there is a lot more in the article), the Goldman Sachs complicated their life greatly instead of saying “No Comment”.
Mike “Mish” Shedlock
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