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It’s Here: Cuomo Files Suit Against E&Y Over Lehman Meltdown – Law Blog – WSJ

December 21, 2010 By Leave a Comment

Tuesday morning, Cuomo filed that suit against Ernst & Young for civil fraud, according to the WSJ’s Liz Rappaport. The allegation: that the accounting firm helped Lehman shield the truth about its financial situation from investors for about seven years before the bank finally collapsed in September of 2008. Click here for the complaint; here for the story.

Ernst & Young knew about, supported, and advised Lehman on its “Repo 105” transactions, a type of debt they took on, but labeled as sales, which made the firm appear to investors less risky than it really was, according to the complaint. The audit firm also stood quietly by while Lehman misled analysts and investors on conference calls and in financial filings about its levels of risk, particularly after the firm’s stability began to crack after the credit crisis began in 2007, said the complaint.

via It’s Here: Cuomo Files Suit Against E&Y Over Lehman Meltdown – Law Blog – WSJ.

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It’s Here: Cuomo Files Suit Against E&Y Over Lehman Meltdown – Law Blog – WSJ

December 21, 2010 By Leave a Comment

Tuesday morning, Cuomo filed that suit against Ernst & Young for civil fraud, according to the WSJ’s Liz Rappaport. The allegation: that the accounting firm helped Lehman shield the truth about its financial situation from investors for about seven years before the bank finally collapsed in September of 2008. Click here for the complaint; here for the story.

Ernst & Young knew about, supported, and advised Lehman on its “Repo 105” transactions, a type of debt they took on, but labeled as sales, which made the firm appear to investors less risky than it really was, according to the complaint. The audit firm also stood quietly by while Lehman misled analysts and investors on conference calls and in financial filings about its levels of risk, particularly after the firm’s stability began to crack after the credit crisis began in 2007, said the complaint.

via It’s Here: Cuomo Files Suit Against E&Y Over Lehman Meltdown – Law Blog – WSJ.

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Goldman seeks settlement with SEC | FT.com

May 28, 2010 By Leave a Comment

Goldman Sachs is hoping to avoid the Securities and Exchange Commission’s charge of fraud by reaching a settlement on a lesser offence and agreeing to a fine of hundreds of millions of dollars, according to people familiar with the bank’s negotiating position.

Goldman, which has been accused of civil fraud over a complex mortgage-related security called Abacus, is trying to focus settlement talks with the SEC on the less serious charge of omitting or mis-stating material facts to investors.

Regulatory experts say that companies charged with fraud often seek a settlement on a lesser charge but it is unclear whether the SEC would agree to downgrade such a high-profile case.

A lesser charge would reduce Goldman’s risk of being sued by investors and help the bank avoid the reputational damage of having settled a fraud charge, according to people familiar with the situation.

People involved in the discussions say that, even if regulators agree to consider a lesser charge, Goldman would neither admit nor deny wrongdoing – a common practice among companies settling with the SEC.

Goldman and the SEC declined to comment.

In a note to clients on Thursday, Brad Hintz of Bernstein Research estimated that Goldman might pay a fine of $250m and compensate investors by buying out their exposure to the Abacus deal at a cost of $370m.

via FT.com / Companies / Banks – Goldman seeks settlement with SEC.

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U.S. Investigating Morgan Stanley Mortgage Deals – WSJ.com

May 12, 2010 By Leave a Comment
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U.S. prosecutors are investigating whether Morgan Stanley misled investors about mortgage-derivatives deals it helped design and sometimes bet against, people familiar with the matter said, in a step that intensifies Washington’s scrutiny of Wall Street in the wake of the financial crisis.

Morgan Stanley arranged and marketed to investors pools of bond-related investments called collateralized-debt obligations, or CDOs, and its trading desk at times placed bets that their value would fall, traders said. Investigators are examining, among other things, whether Morgan Stanley made proper representations about its roles.

Among the deals that have been scrutinized are two named after U.S. Presidents James Buchanan and Andrew Jackson, a person familiar with the matter said. Morgan Stanley helped design the deals and bet against them but didn’t market them to clients. Traders called them the “Dead Presidents” deals.

The probe is at a preliminary stage. Bringing criminal cases involving complex Wall Street deals is a huge challenge for prosecutors. The government must prove beyond a reasonable doubt that a firm or its employees knowingly misled investors, a high bar. The government launches many criminal investigations that end without any charges being filed.

Morgan Stanley wasn’t among the biggest players in the CDO market. Although the firm made money on the Dead President deals, any profit was overshadowed by the $9 billion the firm lost on bullish mortgage bets in 2007, a person familiar with the matter said.

In a step that intensifies Washington’s scrutiny of Wall Street, prosecutors are investigating whether Morgan Stanley misled investors on mortgage-derivatives deals it helped design and sometimes bet against. Amir Efrati discusses the story along with Bob O’Brien. And Sudeep Reddy discusses the Senate’s decision to force the Fed to disclose key details of its loans during the financial crisis.

The investigation grew out of an ongoing civil-fraud investigation launched by the Securities and Exchange Commission in 2009, examining the mortgage-bond business of more than a dozen Wall Street firms, the people said. The Manhattan U.S. Attorney’s office now is investigating some of those firms’ activities in a criminal probe.

via U.S. Investigating Morgan Stanley Mortgage Deals – WSJ.com.

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SEC Sues Goldman Sachs For Civil Fraud in Sale of Mortgage-Related Product – Law Blog – WSJ

April 16, 2010 By Leave a Comment

Expect all of Saturday’s newspapers to be filling their front pages with this breaking news: The Securities and Exchange Commission sued Goldman Sachs and one of its employees for civil fraud, alleging they defrauded investors in selling a financial product tied to subprime mortgages, in 2007. Here’s the suit.

The potential financial impact on Goldman from the case is unclear because Goldman’s gain from the alleged fraud was $15 million. However, the investors’ loss was $1 billion, according to the SEC.

But this story has legs, folks. First off, Goldman has been feeling heat in recent months amid record profits and revelations of their wild success amid the credit crisis, which hit other Wall Street firms hard. To say the firm had a target on its back, politically speaking, is an understatement. An hour after the suit was filed, Goldman shares were down 13%.

Second, the SEC also has been under seige in recent months for, among other things, perceived failures to catch Ponzi schemer Bernard Madoff and some high-profile litigation trip-ups, including its failed insider-trading case against Mark Cuban. If the Goldman case is successful, it could help rebuild the agency’s reputation.

Third, the case filed by the SEC prominently features hedge fund Paulson & Co., led by John Paulson, who made the “Greatest Trade Ever” by betting against the mortgage market. His firm earned $15 billion in 2007 alone.

The SEC’s case focuses on a single transaction structured by Goldman, for which it allegedly earned $15 million in fees from Paulson.

via SEC Sues Goldman Sachs For Civil Fraud in Sale of Mortgage-Related Product – Law Blog – WSJ.

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