Gloves off as Goldman ups SEC defence

GOLDMAN Sachs at the weekend distanced itself even further from the man at the centre of the Securities and Exchange Commission’s fraud case, publishing a raft of damaging personal emails to demonstrate differences of opinion within the bank.

Goldman’s retaliatory move came just hours after a Senate subcommittee released a number of potentially explosive email threads between the bank’s top executives discussing how it would make money from betting against the housing market.

Within the 26 internal documents released in Goldman’s defence were emails in which Tourre described the type of synthetic collateralised debt obligation (CDO) at the centre of the SEC’s allegations as a “product of pure intellectual masturbation”, warning that the instrument could end up like a “Frankenstein” monster, turning against its own inventor.

Goldman insisted it had not found any evidence of wrongdoing by Tourre, though its decision to release his boastful emails has raised eyebrows ahead of his appearance before the Senate subcommittee tomorrow.

The move, which comes after Goldman last week stripped Tourre of his FSA licence, is the clearest indication to date that the bank has withdrawn the unconditional support it pledged to him immediately after the SEC filed charges ten days ago. It claimed Goldman defrauded investors by creating a product designed to fail, netting short investor John Paulson almost $1bn (£0.65bn).

The subcommittee went on the offensive at the weekend, releasing eight pages of emails relating to Goldman’s role in selling sub-prime products, including messages from chief executive Lloyd Blankfein.

But a Goldman spokesman said the committee had “cherry-picked” the email evidence, adding: “It is concerning that the subcommittee seems to have reached its conclusion even before holding a hearing.”

From: Fabrice Tourre
Date: 27 January, 2007

“Not feeling too guilty about this, the real purpose of my job is to make capital markets more efficient and ultimately provide the US consumer with more efficient ways to leverage and finance himself, so there is a humble noble and ethical reason for my job ;) amazing how good I am in convincing myself!!!”

From: Lloyd Blankfein
Date: 18 November, 2007

“Of course we didn’t dodge the mortgage mess. We lost money, then made more than we lost because of shorts.”

From: Fabrice Tourre
Date: 29 January, 2007

“When I think that I had some input into the creation of this product – which by the way is a product of pure intellectual masturbation, the type of thing which you invent telling yourself: ‘Well, what if we created a “thing”, which has no purpose, which is absolutely conceptual and highly theoretical and which nobody knows how to price?’ – it sickens the heart to see it shot down in mid-flight...
It’s a little like Frankenstein turning against his own inventor…”

● 16 April
Securities and Exchange Commission (SEC) submits fraud complaint to the US District Court in New York

● 18 April
Prime Minister Gordon Brown orders the FSA to begin its own investigation into Goldman, labelling it “morally bankrupt”.

● 20 April
Goldman officially de-registers Fabrice Tourre with the FSA.

● 20 April
Goldman releases first quarter results, smashing Wall Street forecasts as it almost doubles net profits to $3.5bn.

● 20 April
News emerges of a split within the SEC, with two out of its five commissioners having voted against the decision to pursue a civil fraud action against Goldman.

● 21 April
Testimony leaked from ex-Paulson employee Paulo Pellegrini claims that ACA, which marketed the CDO at the heart of the SEC’s allegations, was aware of Paulson’s role as a short investor.

● 24 April
Senate subcommittee publishes email evidence from Goldman executives; Goldman retaliates by releasing its own documents, including emails from Tourre.

● 27 April
Tourre and Goldman chief Lloyd Blankfein due to appear before the subcommittee.