Goldman’s Email Saga – Frankenstein’s Creator, Orphan’s and Widows and LDL
The devil may be in the details but for Goldman Sachs it seems to be in the emails. At least that is the argument that is likely to be made later this week by Michigan Senator Carl Levin. The senator is the chairman of the Senate’s Permanent Subcommittee on Investigations, which will be interviewing Goldman this coming Tuesday.
The Wall St. Journal is reporting that over the weekend a number of Goldman executives including Fabrice “Fab” Tourre (the trader accused of fraud last week by the SEC) and Chairman and CEO Lloyd Blankfein. They discussed the Abacus 2007-AC1 product sold by Goldman. Here is a pitchbook for the Abacus CDO:
To refresh memories the problem, the SEC alleges, was that Goldman did not disclose that the hedge fund firm Paulson helped to select some of the CDO’s underlying mortgages which it happened to be betting against. The SEC’s complaint began via a confidential Wells notice to Goldman in the summer of 2009 warning of possible charges. In September 2009 Goldman responded to the SEC in two documents. Here is the link to document 1 and document 2. Since the SEC’s charges were filed other documents have been released including:
* Goldman’s version of the firm’s 2006 and 2007 trading
*The Senate’s subcommittee release of Goldman emails
This guy says you should not buy Goldman stock now (and Paulson was no sub-prime expert…)
News is also being released that Goldman played a crucial role in building the mortgage businesses of Washington 
Mutual and Long Beach Mortgage Co. and that Goldman’s mortgage trading department held White Castle hamburger eating contests.
At Saturday’s interview with investigators, Mr. Tourre was accompanied by three lawyers, including white-collar securities lawyer Pamela Chepiga, a partner in the New York office of Allen & Overy LLP.
After the meeting Goldman, in some have argued is an attempt to distance Goldman’s senior executives from
the released a series of emails from the 31 year old Tourre, released Tourre’s emails to girlfriends. In those email, which it can be argued, shows he had some doubts about both the products he was selling and the investors who were buying them. In one message, he wrote that he sold a product to “widows and orphans,” comparing an investment he helped create to “Frankenstein turning against his own inventor.”
Senate investigators have discovered a number of emails in which Goldman executives used the term “LDL.” The letters mean “Let’s discuss live.” The phrase occurred when Goldman executives began to discuss sensitive issues in emails, according to people familiar with the situation. At other times, executives would criticize each other for putting information in emails.
The White House’s Larry Summers argues that these emails show the need for increased transparency. In its defense Goldman claimed it lost $1.2 billion on the sub-prime market. Since when is the fact that you lost money a defense to fraud allegations?
In other Goldman news, it was reported that Paolo Pellegrini, a former Paulson executive who earned a reported $175 million bonus in one year and now runs his own hedge fund, told the SEC that he informed ACA Management LLC the so-called ABACUS portfolio selection agent, that Paulson intended to bet against the mortgage positions. If ACA did indeed know this, it might deal a blow to the SEC’s case which claimed that, along with investors, ACA was also a misinformed victim in the alleged fraud. More is likely to emerge about waht Mr. Pellegrini told the SEC as well as what was the role of ACA CDO head Laura Schwartz.
In other Paulson news, it is being reported that Paulson sent out a letter to investors on April 21 stating that, “I’ve 
made the decision that any legal fees or liabilities associated with any litigation regarding ABACUS 2007-AC1 will be borne by Paulson & Co. Inc. and not by the investors in any of the funds.” This still represents an operational risk to investors in the firm’s funds, an operational risk. If resources are drained which would otherwise be utilized to support the fund’s efforts there might not be a direct economic effect on investors but an overall drag, however minimal, due to the allocation of both money and time towards litigation.
Although perhaps the fact that 21 Paulson workers and seven of their spouses gave over $95,000 at an event at the Friars Club in Manhattan in support of New York Senator Chuck Schumer, a member of the Finance and Banking committees and a key player in financial reforms under debate in Congress, might not have been a bad investment….
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