The SEC charges of fraud against Goldman Sachs & Co are giving some of us that believe in accountability renewed hope that a fiduciary standard will be included in the financial reform legislation currently before Congress.
Basically, the charges against Goldman and institutional broker Fabrice Tourre, paint a picture of the harm that a broker who relies on the suitability standard when selling financial products can inflict on a client. The SEC lawsuit against Goldman shows that the securities industry at times will adhere to the lowest possible standards when selling products to clients. The general perception is that Wall Street is not doing a good job protecting the little guy and should not be allowed to police itself any longer. I think we can all agree with that.
The SEC lawsuit charged that Goldman made "materially misleading statements and omissions" in connection to the sale of a one billion dollar collateralized debt obligation or CDO to institutional clients in 2007. Undisclosed in their marketing material, a large hedge fund (Paulson and Co, Inc.) having interests directly adverse to investors in the CDO, played a large role in portfolio selection. To put things in the simplest of terms, Goldman Sachs did not tell investors that a hedge fund was taking large short positions on the CDO betting against the investors. This is very uncool.
Currently, the minimum requirement for suitability standard means that a broker cannot cheat, steal or lie. The Goldman Sachs case really showcases how low a premier firm regards these standards. The fiduciary standard holds brokers to a higher standard than the suitability standard and the SEC wants to adopt rules requiring broker dealers that provide advice to comply with the higher fiduciary standard.
Goldman Sachs is saying that the SEC's interpretation of the basic fair dealing suitability standard requirements are to high. Excuse me, but the standard that a broker cannot lie, cheat or steal should be assumed in all cases and is not up for interpretation.
So if the current view holds, the gap between fair dealing and fiduciary standards will be huge. The Senate is currently debating the financial reform bill. Meanwhile, Goldman Sachs reported a record 3.5 billion in first quarter earnings. Sounds like little has changed, so as an investor, please be informed, aware and educated when it comes to the financial products that you purchase.
If you wish to read the actual complaint, and I suggest that you do, go to the SEC website and look at litigation release 21489 along with the SEC complaint.
• Carol Perry has been a Northern Nevada resident since 1983. You can reach her at carol_perry@worldnet.att.net.