Is Goldman Posturing to Settle the SEC's CDO Fraud Claims
Bloomberg is reporting that Goldman Sachs has broken off negotiations with the law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP and says it does not plan to engage another law firm to defend it in the pending action by the Securities and Exchange Commission. Bloomberg reportedly confirmed this decision with Goldman spokesman Lucas van Praag.
The SEC suit alleges that Goldman misrepresented and failed to disclose material facts regarding a derivative deal involving toxic mortgage securities that Goldman created and sold to investors, despite privately referring to it as a “shitty” deal. Goldman is also facing a criminal probe and disgruntled shareholders, some of whom want a management shakeup.
At the same time, Lorin Reisner, the SEC’s deputy director of enforcement, filed a notice with the court indicating that he plans to appear and participate in the litigation. Before joining the SEC last year, Reisner was a litigation partner with Debevoise & Plimpton LLP since 1996, where he handled cases involving financial crimes, public corruption, organized crime, among other things. He was an assistant U.S. attorney in New York from 1990 to 1994.
"It sends a strong message that the enforcement division is both stepping up to the plate and standing behind its case," said Jacob Frenkel, a former SEC enforcement division attorney, who isn't involved in the Goldman lawsuit. "It's unusual, but it's a logical and brilliant move when you have skilled trial lawyers who are part of senior management who step forward."
What message is Goldman sending? By deciding not to hire outside counsel, Goldman may be posturing to settle the dispute.
