Insider Trading At Goldman?

Posted by John Carney, Oct 31, 2007, 1:57pm

When Goldman turned in it's third-quarter earnings and revealed the the credit-crunch was its friend, several eyebrows were raised by market watchers. How could Goldman have made the kind of money it claimed to have made by shorting subprime mortgages, more than person we spoke with asked.

Apparently, the same question is being asked over at the Securities and Exchange Commission. Writing in today's New York Post, John Crudele reports that the SEC is "curious" about whether Goldman's traders were tipped off by the firm's investment bankers, giving them an edge on the market. Interestingly, there seems to be some debate within the SEC about whether or not such tipping would constitute insider trading. We assume the crux of the matter is the technical legal question of whether the notoriously conflict-ridden Goldman could ever commit insider trading. If your clients already know you are on both sides of every trade, can you really be convicted of misappropriating from them?

We'd like to know a question Crudele doesn't ask: what kind of non-public information could have led Goldman to take on those winning positions?

SEC Eyes Goldman Sachs' Good Fortune [New York Post]

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Posted in: Goldman Sachs, Insider Trading

Comments

Posted by LippyTex, Oct 31, 2007 2:19PM

Goldman told everyone they were selling crude oil the other day and today crude is up about $5.00/bbl. Caveat emptor.

Posted by me, Oct 31, 2007 2:25PM

it wasn't rocket science to be short ABX and other subprime related things in may-june. goldman wasn't alone (some hedge funds are up nearly 450-500%, in 2007, no?). Merrill, Bear, et al got crushed because they didn't properly manage their warehouses and other committments to crappy products.

Posted by , Oct 31, 2007 2:33PM

On the last day of the first quarter (when they allegedely had a huge net long position on oil) GS said oil was going to have a 'super spike', which of course it immediately did.

It saved the quarter, and they were also right.

Don't fuck with them.

Posted by , Oct 31, 2007 3:09PM

so you are saying one of two things. Their research gives their prop desk advance notice of their announcements, or their prop desk tells their research what to announce?

Posted by , Oct 31, 2007 3:10PM

Heads up of GS:

To their prop desk: Here is this excel file with Global Alpha's positions.

To GSAM: Why don't you go and de-lever Global Alpha take most of the risk off.....

Posted by , Oct 31, 2007 3:16PM

DK. I'm just saying they are masters of the universe and it's not smart to fuck with them.

Posted by , Oct 31, 2007 3:26PM

"If your clients already know you are on both sides of every trade, can you really be convicted of misappropriating from them?"

Yes.

Posted by Stephen Bainbridge, Oct 31, 2007 3:34PM

Classic disclose or abstain insider trading liability would be premised on Goldman owing a duty to the people on the other side of the deal, which would be absent unless they were dealing with Goldman clients. Misappropriation would require a breach of duty to the source of the information. If the information was developed internally by Goldman’s investment bankers who then tipped the firm’s trading desk, there’d be no breach. Strikes me as an easy case, unless the information about the subprime mortgages came from a source outside Goldman to whom the firm owed fiduciary duties.

Posted by , Oct 31, 2007 3:44PM

An easy case against GS if bankers received information from their clients and then tipped the traders.

Posted by The Man from Waseca, Oct 31, 2007 3:47PM

I'll welcome them with open arms. Amateurs!

Posted by Gringo, Oct 31, 2007 3:56PM

Sure, investment bankers are great traders, economists and gurus of the financial markets who know in advance that some products they dont understand will blow up in the US. You are overestimating the little number crunchers we are.

To the traders, Good Job guys!

Posted by Gringo, Oct 31, 2007 3:59PM

Sure, investment bankers are great traders, economists and gurus of the financial markets who know in advance that some products they dont understand will blow up in the US. You are overestimating the little number crunchers we are.

To the traders, Good Job guys!

Posted by Gringo, Oct 31, 2007 4:02PM

Sure, investment bankers are great traders, economists and gurus of the financial markets who know in advance that some products they dont understand will blow up in the US. You are overestimating the little number crunchers we are.

To the traders, Good Job guys!

Posted by KMan, Oct 31, 2007 4:10PM

John Crudele is a hack and conspiracy theorist, so treat his info with the appropriate degree of scorn.

And you mean to tell me that people thought subprime loans might one day crash? And traders made this bet? I'm shocked. Anyone that needed an investment banker to tell them that 6 months ago is either, clueless, lying or an idiot. Or all three.

Posted by , Oct 31, 2007 4:11PM

@ gringo- is that you TK?

Posted by anonymouse, Oct 31, 2007 4:32PM

Of course everyone knew that subprime would blow up, just didn't know when or how quickly. And I doubt there would be much that banking could tell the traders in advance.

Unless of course these bankers were privy to certain mortgage originators that were due to go under, get their warehouse lines pulled, etc (and had maybe come to Goldman looking for help). Then sharing that with trading and profiting from that knowledge....

Posted by anonymouse, Oct 31, 2007 4:35PM

Of course everyone knew that subprime would blow up, just didn't know when or how quickly. And I doubt there would be much that banking could tell the traders in advance.

Unless of course these bankers were privy to certain mortgage originators that were due to go under, get their warehouse lines pulled, etc (and had maybe come to Goldman looking for help). Then sharing that with trading and profiting from that knowledge....

Posted by , Oct 31, 2007 4:39PM

well these guys lost hundreds millions taking the wrong side of the mortgage trade for various prior quarters, nice to see them get it right just in time

Posted by just me, Oct 31, 2007 5:46PM

Maybe GS folks are simply smarter, faster and better than most of you.

Posted by The Epithet Slinger, Oct 31, 2007 10:10PM

Multi-posting bastards!!!

Posted by Andy Tabbo, Nov 01, 2007 12:37AM

Finally, someone checking out Goldman! If you were an investor in Goldmans 'flaghsip' hedge funds, how would you have felt after the quarter? Some of their funds were taking it on the chin, while the "A plus" traders, trading on proprietary information, were doing quite well! I still find it difficult to understand why anyone would invest large sums of money with GS. They are going to rip you off coming and going. Someone mentioned the "super spike" comment from 2005....yeah I remember that one....none of the GS energy traders would respond to IM's after that.

Posted by , Nov 01, 2007 10:01AM

Has the SEC ever established that insider trading applies to anything other than the equity markets?

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