Opalesque Industry Update – Embattled global investment bank Goldman Sachs found an ally in big names from the hedge funds industry, who described the U.S. Securities and Exchange Commission (SEC) charges against it as “childish” and all drama.|
Activist hedge fund Ken Griffin of Citadel Investment Group said that the questioned disclosure around Goldman’s transaction with John Paulson, CEO of hedge fund firm Paulson & Co., that is being used to vilify the investment bank or to pass regulatory reform is incredible. “I don’t want to use the word childish… but it’s childish,” he told Reuters.
Bill Ackman, founder and CEO of Pershing Square Capital Management, defended Goldman Sachs and told CNBC that he does not believe the bank had committed fraud. “I don’t think the (Securities and Exchange Commission) has a good case. Having been the subject of investigation in the past … I don’t feel sorry for Goldman Sachs, but they’re not being treated fairly,” he said.He explained that it would be unethical for Goldman to disclose that Paulson was shorting the housing trade to any investors taking long positions.
The SEC filed securities charges against Goldman Sachs and one of its employees, Fabrice Tourre, for alleged material misstatements and omissions in connection with a synthetic collateralized debt obligations (CDO) that the bank structured and marketed. The synthetic CDO called ABACUS 2007-ACI, was shorted by John Paulson – a transaction that saw him earn around $1bn.
An unnamed senior London-based hedge funder told Fox Business that hedge funds are sticking with Goldman Sachs because nobody wants “to kill the golden goose.” The source told Fox Business, "People are not afraid to move the business to where they think it should be, regardless of who the counterparty is. But obviously nobody wants to upset Goldman ... at the moment they don't have any reason."
On Sunday, Berkshire Hathaway’s CEO Warren Buffet expressed confidence with his $5bn investment into Goldman Sachs. Berkshire’s director Thomas Murphy said Buffet is not concerned with his investment and remains comfortable with his working relationship with the investment bank.
Goldman Sachs’ CEO Lloyd Blankfein pledged to introduce reforms in the bank’s policies in the wake of its recent controversy. He made the promise during the nearly 11-hour hearing conducted on Tuesday by the U.S. Senate Permanent Subcommittee on Investigations, led by Senator Carl Levin. He told senators that "everything that's been the subject of criticism will be tightened up.”
At the same time, a senior lawyer representing Goldman Sachs said the judgment should be based on “merits and facts” rather than on a picture of Goldman as an “evil empire.”