Monthly Archives: April 2010

The charge against Goldman Sachs that may really matter

As readers know I am somewhat sceptical of the basis of the claims against Goldman Sachs made by the SEC regarding their role as a market maker in a derivatives transaction with IKB and Paulson & Co. Both Paulson and IKB are big boys, more than capable of “fending for themselves” (as the Supreme Court put it in a leading securities law case).

But now a leading class action law firm claims that when Goldman failed to disclose that it had received a so-called Wells Notice from the SEC last summer it was concealing material information from investors and thus misleading them. A Wells Notice is an indication the SEC intends to charge a party with a securities law violation. It is an indication that the party has a last clear chance to settle or explain the situation to try to avoid charges. It seems clear Goldman was unwilling to settle with the Commission (though there is some indication the SEC did not want to settle) so when the SEC filed a complaint against the bank recently it led to a dramatic $10 billion loss in the firm’s market value.

The complaint charges that the firm misled the public into thinking things were just fine and dandy when it knew that was not the case. That would mean that the bank’s stock was trading at artificially high prices. Had the firm shared the news about the Wells Notice then Goldman shareholders could have made up their own minds whether to stick by Goldman. Instead, the law firm claims, Goldman went on a tear trying to convince everyone that everything was just fine and dandy. Goldman CEO Lloyd Blankfein claimed, absurdly, that Goldman was “doing God’s work.”

The problem here is that whether or not the SEC eventually prevails on the underlying charge there is little doubt the market has decided that Goldman’s reputation has taken a huge hit. And when you are a market maker – bringing buyers and sellers of securities together – reputation is everything.

Or, as they say in politics, it’s not the crime that matters, it’s the cover up.

Academic Notes

From time to time readers ask about my academic work. Here are some recent highlights:

I was interviewed recently for an article based in part on my new book, From Che to China, by, of all places, Inside Fashion, an industry magazine published in Hong Kong. An English language version of the article can be found here and a Chinese language version can be found here.

I was interviewed and quoted extensively in Dan Schwartz’s new book on Private Equity and Dan named me to his “Class of 2010 in Private Equity and Venture Capital.” A link to the text can be found here. My comments to Dan were largely based on a paper I completed recently on organized labor and private equity which can be found here. It will appear as a chapter in a book edited by Peer Zumbansen (York) and Cynthia Williams (Illinois) soon.

I will be presenting my work on the financial markets with economist Jennifer Kuan, a research fellow at the Stanford Institute for Economic Policy Research, at a conference on the current economic crisis to be held at the New School next week. You can learn more about the conference here. Jenny, in turn, will be presenting our paper at the Industry Studies Conference at the University of Illinois Chicago soon after that. You can learn more about that conference here. And you can access a draft of our paper here.

Anna Walentynowicz – Polish Solidarity Founder Dead in Russian Plane Crash

imagesIn a tragic loss for the movement for democratic rights, Anna Walentynowicz, whose sacking by a Polish shipyard in August 1980 sparked the formation of Polish Solidarity was among the dead in the plane crash in Russia today.

Solidarity was perhaps the most important example of the power of a democratic workers movement in recent memory. Its strike wave and organizing led eventually to the downfall of the Polish Stalinist regime and, in turn, helped lead to the fall of the Berlin Wall in 1989.

walentynowicz_z_tubaWalentynowicz was one of the great heorines of the 20th century who never lost her fierce independent streak. She was never afraid to speak up even to the top leadership of her own movement.

UPDATE: The Times has now run a much deserved obituary for Ms. Walentynowicz here.