In a letter addressed to SEC Chairwoman Mary Schapiro and signed by eight other House Republicans, Representative Darrell Issa demanded the Securities and Exchange Commission turn over records relating to the civil charges the commission brought against Goldman Sachs. In his letter Issa accused the commission of violating federal law "by using the resources of an independent regulatory agency to promote a partisan political agenda."
From the text of Congressman Issa's letter:
...the events of the past five days have fueled legitimate suspicion on the part of the American people that the Commission has attempted to assist the White House, the Democratic Party, and Congressional Democrats by timing the suit to coincide with the Senate’s consideration of financial regulatory legislation, or by providing Democrats with advance notice. In fact, the aggressive campaign by Democrats in support of the legislation neatly coincided with the Commission’s announcement of the suit. For example:
--The Commission approved the Goldman suit in a vote that spit along party lines – a rare occurrence for approvals of enforcement litigation.
--Before the Commission had released its announcement, the New York Times published on its website a story describing the suit.
--Less than half an hour after the Times story’s publication, Organizing for America, the successor organization to Obama for America and now a project of the Democratic National Committee (“DNC”), sent millions of supporters an e-mail message from President Obama urging support for “Wall Street Reform.”
--Within hours, the Democratic National Committee had purchased AdWords advertising from Google, Inc. The DNC’s Google campaign fundraising advertisement, headed “Fight Wall Street Greed,” appeared whenever a user ran a Google search for the phrase “Goldman Sachs SEC.” It read, “Help Pres. Obama Reform Wall Street and Create Jobs. Families First!” and included a link to www.BarackObama.com, the website of Organizing for America.
--Democrats in Congress and the Administration have heralded the Commission’s suit against Goldman as a welcome boost to their case for the legislation.
--Members of the media have already begun to question the timing of the Commission’s suit and the actions of the Democratic National Committee.
Sure enough, a Google search on "Goldman Sachs SEC" returns BarackObama.com as its first hit .
Help Change Wall Street
www.BarackObama.com It's Time for Financial Reform that Protects Main Street. Act Now!
Although Obama and the Democrats were all set and ready to pounce when the suit was announced, it's been reported that Goldman was blindsided.
Firms typically get a chance to settle such suits, but not in this case, Goldman said. The Wall Street giant said it was alerted to the probe in the summer of 2008 and was warned that it might face a suit in July 2009. It says it then responded in detail to the Securities Exchange Commission's inquiry in September, but heard nothing back from the government until Friday's unveiling of the civil suit. The SEC usually notifies firms ahead of a lawsuit as a courtesy to give them a chance for a last-ditch settlement or to prepare for the public fallout.
The move showed a combative streak from the SEC, which has been under mounting pressure after letting slip through its fingers early probes into the Ponzi scheme of Bernard Madoff and the alleged fraud of Texas financier R. Allen Stanford.
The case, SEC v. Goldman Sachs & Co. and Fabrice Tourre, sets the stage for what could become the signature lawsuit from the financial-crisis era. It comes at a time when the Obama administration is trying to move through Congress a bill to overhaul financial regulations in the wake of the crisis—legislation that would likely affect the regulation of products used in the Goldman deal.
Lawsuits by the SEC are subject to a vote by the agency's five commissioners, and the tally on the Goldman case will be closely watched in Washington, as the current commission is split along party lines—with two Republicans and two Democrats, plus one independent who was appointed by President Obama.
The way the SEC launched the suit "certainly doesn't follow the spirit" or practice of the agency, said Paul Atkins, who served as a Republican SEC commissioner last decade.
Naturally, the SEC says standard practices were followed in pursuit of the case, and the White House claims it got no advance notice. But they've been remarkably quick to use the charges against Goldman in their push for financial reform.
Update: CNBC reports that the government has in its possession testimony directly rebutting the Securities and Exchange Commission's claim that ACA Management was unaware of Paulson & Company's intention to short a portfolio of mortgages assembled as Abacus 2007-AC1. The SEC has charged that Goldman Sachs' failure to disclose Paulson's position was a "material" factor that might have caused ACA to back out of its own investment in the CDO.
Paolo Pellegrini told the government that he informed ACA Management that Paulson intended to bet against, or short, a portfolio of mortgages ACA was assembling.
If true, the testimony would go directly against government claims that ACA did not know Paulson was hoping the collateralized debt obligations would fail, and subvert charges that Goldman breached its duty by not informing ACA of Paulson's position.
CNBC has examined documents in which a government official asked Pellegrini whether he informed ACA CDO manager Laura Schwartz about Paulson's position in the portfolio, named Abacus 2007-AC1.
"Did you tell her that you were interested in taking a short position in Abacus?" a government official asked Pellegrini, referring to the name of the CDO portfolio.
"Yes, that was the purpose of the meeting," Pellegrini responded.
[...]
CNBC further learned that Pellegrini and Schwartz met at least three times to discuss the CDO and Paulson's short position on Abacus.
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