Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Any Goldman Sachs Settlement Will Likely Be Decimal Dust to Them

|Includes: Goldman Sachs Group Inc. (GS)



The Wall Street Journal ran an excellent story this morning about how the SEC is trying to bury one of its many screw-ups by trumpeting its civil suit against Goldman Sachs (NYSE:GS) – which will no doubt result in an out-of-court settlement that will represent decimal dust to Goldman and provide no disincentive whatsoever from engaging in the same sort of act tomorrow and the next day.  Excerpts below…

 

…Last Friday, the same day that the government unexpectedly announced its Goldman lawsuit, the SEC's inspector general released his exhaustive, 151-page report on the agency's failure to investigate alleged fraudster R. Allen Stanford… The report is damning for an SEC that wants the public to believe it has turned the corner after the Bernie Madoff disaster…. [Spencer Barasch is] the SEC enforcement official who sat on various referrals to investigate Allen Stanford and then, after leaving the SEC, performed legal work for… Allen Stanford.

 

…In the Stanford case, we see numerous SEC insiders over many years urging—at times begging—the enforcement staff to take action, to no avail.  The examination staff at the SEC's district office in Fort Worth, Texas reviewed the Stanford Group's operations in 1997, concluded that its sale of certificates of deposit likely constituted a Ponzi scheme, and referred the matter to SEC enforcement staff… SEC examiners investigated again in 1998, 2002 and 2004. Each time, they concluded that the Stanford operation was a probable Ponzi scheme and urged SEC action. Each time, the enforcement staff failed to act.

 

Along the way, SEC enforcers also ignored warnings from the daughter of an elderly investor in the Stanford scheme, the Texas State Securities Board, an anonymous insider in the Stanford operation, and U.S. Customs, which suspected that the Stanford organization was laundering money. The SEC at times would open preliminary investigations. When the Stanford Group declined to provide information, the inquiry would end.

 

Particularly tragic is that almost all of the $8 billion that Mr. Stanford collected from investors was gathered after the SEC's first round of inquiries, so if SEC enforcers had acted on the first referral from their colleagues, this alleged fraud would be measured in millions of dollars, not billions. Later, some investors increased their investments with Stanford Group after they learned that the SEC had investigated in 2005 and took no action. They viewed it as a clean bill of health.

 

…SEC IG David Kotz asked the enforcement staff how it could possibly have failed to prosecute someone who was believed by so many others to be running a fraud. The staff told him that senior SEC management did not favor the pursuit of Ponzi schemes and other frauds that were difficult to investigate and time-consuming to prosecute... Why do the painstaking work of tracking down actual criminals when you can score favorable headlines with a drive-by lawsuit against a large public company that will have a strong incentive to settle quickly?

 

I see the SEC action as being nearly as smarmy as Goldman was in pouring this pile of steaming...mush... onto unsuspecting investors.  It allows them to ally themselves on the side of public sentiment while, in fact, accepting the usual token from their pals on Wall Street rather than pursuing the criminals whose frauds (in the SEC’s own words) “were difficult to investigate.”  And here I thought that was their job

 

I have followed the Stanford case closely because "Sir" Allen sold his dreck via an eponymous firm that is similar in name, but not in business practices, to our own.  If you are interested for the sake of accuracy in making such distinctions, I answered one SA reader who asked if we were affiliated with this piece of, um, “work” thusly:

 

Allen Stanford of Stanford Financial Group…
Organized in Antigua, a nation the US Treasury accuses of deliberate illicit finance practices and look-the-other-way banking.

Joe Shaefer of Stanford Wealth Management LLC…
Subject to lifelong SEC, NYSE, FINRA, Nevada and peer review scrutiny. Also holder of an Intelligence Community Top Secret clearance for 40 years, and REALLY poked and probed to keep that clearance.  Teaches about Illicit Finance at his university.

Allen Stanford of Stanford Financial Group…
Knighted in Antigua, not England. Gained his title of “Sir” Allen by spreading joy and dollars to the powers that be in Antigua -- which gave him a title and passport in return

Joe Shaefer of Stanford Wealth Management LLC…
Got his titles (Private, Lieutenant, etc.) the old-fashioned way. Earned ‘em. Some in spots slightly less idyllic than Antigua.

Allen Stanford of Stanford Financial Group…
A dual citizen of the US, where he was born, and Antigua, where he plied his trade until the US Attorney suggested, rather forcefully, that it would be a very bad idea to try to leave the US.

Joe Shaefer of Stanford Wealth Management LLC…
An American and proud of it. I don’t need no steenking “escape” passport.

Allen Stanford of Stanford Financial Group…
Claims to have assets under management of $50 billion. Unfortunately, some of that may have been garnered from new investors wowed by hypothetical returns presented as if they were actual returns. (This according to former employees who FOR YEARS tried to get the SEC to investigate, all to no avail. Note to SEC: How many employee affadavits does it take to get you out of your offices to check out FRAUD? Can you spell P-O-N-Z-I??)

Joe Shaefer of Stanford Wealth Management LLC…
Stanford Wealth Management has a slightly lesser amount of assets under management. On the other hand, our assets are real.

Allen Stanford of Stanford Financial Group…
Personal fortune estimated by Forbes at $2.2 billion.

Joe Shaefer of Stanford Wealth Management LLC…
Inexplicably, Forbes neglected to include Joe on the most recent list of US billionaires. I’ll contact my friend Steve Forbes and see what the problem is.

Allen Stanford of Stanford Financial Group…
“Sir” Allen is separated from his wife and six children, but has a girlfriend, Andrea Stoelker, he may or may not have been with for 7 years. He may or may not have fired her recently from her “job” as president of the Stanford Super Series (Caribbean cricket) after she did or did not have a “liaison” with Chris Gayle, the captain of the Stanford Superstars cricket team and a somewhat more athletic specimen than Sir Allen. He (Stanford, not Gayle) was also recently the defendant in a paternity suit in Miami, the plaintiff with whom he may or may not have had two additional children.

Joe Shaefer of Stanford Wealth Management LLC…
Boring by comparison. He’s been married to the lovely and talented Heather Williams for 15 years. Ms. Williams has also been thoroughly reviewed and registered with the SEC, the NYSE, the NASD, etc., etc. She is the Chief Compliance Officer of Stanford Wealth Management, LLC, and keeps its books, records, and policies in full compliance with all regulatory rules and guidelines. I’ll bet right about now, “Sir” Allen wishes he had someone like Heather to keep him from having to hire fancy-pants lawyers to defend him against angry investors. You have chosen poorly, grasshopper…

 

Author's Disclosure: We don’t own Goldman Sachs.  Some people won’t own tobacco stocks, others gambling stocks or steel stocks or oil companies.  We are remarkably catholic (in the non-religious definition of being “of broad or liberal scope”) in our investing.  But with so many honest companies out there that don’t rate their bonuses more highly than their integrity, we have a choice of airlines to fly and we ain’t getting on this one…

The Fine Print: As Registered Investment Advisors, we see it as our responsibility to advise the following: We do not know your personal financial situation, so the information contained in this communiqué represents the opinions of the staff of Stanford Wealth Management, and should not be construed as personalized investment advice.

Also, past performance is no guarantee of future results, rather an obvious statement if you review the records of many alleged gurus, but important nonetheless – for example, our Investors Edge ® Growth and Value Portfolio beat the S&P 500 for 10 years running but did not do so for 2009. We plan to be back on track on 2010 but “past performance is no guarantee of future results”!

Finally, it should not be assumed that investing in any securities we are investing in will always be profitable. We take our research seriously, we do our best to get it right, and we “eat our own cooking,” but we could be wrong, hence our full disclosure as to whether we own or are buying the investments we write about.