Maybe I am stupid. Maybe my mind is clouded by the fact that I hold a small long position in Goldman Sachs (GS). But for the life of me i don't understand the case SEC is trying to make.
They say that CDO sold was created with purpose that it goes down in price. Please name me one company which creates and sells derivative it thinks will go up in price. This is how the derivative game works: there is a seller, who thinks that product goes down in price and a buyer, who thinks that products goes up. In derivatives, there is always a seller. Because every derivative is an artificial product, it only exists when somebody sells it short. Anyway, Paulson is not charged, so shorting derivatives is OK.
Apparently, the charge is that Goldman didn't disclose to buyers that derivative was sold short. What!!? Come on, derivative can't exist if it's not sold short. I am not sure Goldman has the right to name the seller to the buyers, but as far as I know, they just don't have to. SEC is waiving disclosure rule as a flag, but how much they really had to disclose?
SEC didn't file a criminal complaint. It's only a civil suit. But the most suspicious thing is timing. In the middle of option expiration trading session, just tell me why doesn't it affect market. If company releases material information in the middle of the day, usually stock is halted, why wasn't it done with GS this time? Is it legal for SEC to make announcements in the middle of trading day? If so, maybe it's time to make it illegal.
I think this whole case stinks with politics to high haven. Looks too much like a part of the push of financial reform package.
Full disclosure: at the time of publication author had a long position in GS. Positions can change any time.