Sam Antar makes a good point here. Looking out for shareholders was not the objective of the lawsuit brought by the SEC against Goldman Sachs. Whether it would have, should have, or could have been considered is another matter, and apparently not going to be addressed. What we have here (and seemingly everywhere within our financial system) is not a real operation of law, but more of a political sideshow. - Ilene
The Securities and Exchange Commission’s settlement of a lawsuit against Goldman Sachs (NYSE: GS) over a certain subprime mortgage product sold to investors misses a key issue concerning the company’s duty to provide timely and transparent disclosures to its own shareholders about government subpoenas, investigations, and pending enforcement actions against the firm. In this particular case, Goldman did not make timely disclosures about the regulator’s investigation and pending lawsuit against the firm, right under the SEC investigator’s noses.
Goldman Sachs chooses to keep shareholders in the dark about SEC investigation and pending enforcement action
During the summer of 2008, the SEC started investigating Goldman’s marketing of a certain subprime mortgage product, known as ABACUS CDO, to investors who lost over $1 billion from that transaction.
At that time, Goldman Sachs knew that the SEC was investigating its failure to disclose material information to investors in violation of SEC Rule 10b-5 in connection with that transaction. However, Goldman Sachs did not disclose the SEC’s investigation in its financial reports.
In July 2009, the SEC sent Goldman Sachs a Wells notice informing Goldman of its intention to file a lawsuit against the company. Still, Goldman Sachs chose not to disclose the SEC’s pending enforcement action in its financial reports.
On Friday, April 16, 2010, the SEC filed a surprise lawsuit against Goldman Sachs and Executive Director Fabrice Tourre alleging securities fraud in connected with the company’s marketing of the ABACUS CDO to investors. That day, Goldman Sachs shares plummeted from $183.31 per share to $160.30 per share or about 13%, wiping out about $12 billion of shareholder wealth.
Clearly, investors deemed the surprise news of the SEC complaint against the company as material information, unlike the management team running Goldman Sachs.
When we look at the genuinely successful business people of our time, that happy band of folks who’ve created true shareholder value, enriching themselves and their followers to an astonishing degree, we find an extraordinary thing. The vast majority of these people are not particularly interested in money and their companies are generally not dedicated to some New Age declaration of shareholder value maximisation.
Greed is not a quality that seems to drive the world’s greatest creators of shareholder value and creating shareholder value is not the aim of the companies that are best at it. In fact we can pretty much guarantee the alternative: wherever you find over-rewarded executives presiding over companies whose main aim is to increase their market capitalisation we should pick up our skirts and get the hell out of it. Corporate greed is bad for ordinary shareholders.
If you read Warren Buffett’s shareholder letters, for instance, you can’t help but notice that the people whose companies he takes over all, by and large, continue to work for him despite being made rich beyond the dreams of our avarice. They tap-dance to the workplace everyday and lead their companies through a set of values far removed from the value enhancing conceits of management consultants.
What seems to set aside great business people and their businesses from the pond life that mainly occupies executive positions is that they focus on things other than making money. These generally involve doing stuff that people actually want to pay good cash for, rather than an obsession with growth. Indeed, the last thing we should want is running our companies is people who are greedy for money, since the opportunities for unscrupulous executives to cheat us shareholders are huge.
Welch on Shareholder Value
The dangers of the concept of shareholder value are outlined by Jacques Reland who quotes Jack Welch with approval:
“On the face of it Shareholder Value is the dumbest idea in the world. Shareholder Value is a result, not a strategy. Your main constituencies are your employees, your customers and your products”
Welch, of course, was the man behind the elevation of shareholder value to cult status in his time as CEO of General Electric, so this looks like…
Greece/IMF/EU talks continue. According to Greek government officials, some kind of announcement may be made today. The market is hoping to hear something that’s orders of magnitude stronger than any bailout announcement we’ve gotten so far, or otherwise the feeling will be that it can and will fall through again.
Of course, there are fresh violent, anti-austerity protests going on today in Athens. The fact that it’s May Day, a day for celebrating anti-capitalism only adds to the tension.
New reports suggest the criminal probe into Goldman Sachs is not just a perfunctory follow-on to the SEC charges, but rather a truly separate thing that’s wider than Abacus, and that started before the SEC’s investigation. HUGE.
With just five days before the election, UK’s The Guardian has endorsed the Liberal Democrats, the country’s biggest third party. Its leader, Nick Clegg, has surged thanks to a string of strong debate performances, Gordon Brown’s disastrous campaigning, and a lingering sense of unease with the conservatives.
Debt and budgets in the trillions of dollars and euros are difficult to comprehend. The US budget is nearly $4 Trillion per year while the US official national debt exceeds $18 Trillion. A single large bank may hold contracts for more than $50 Trillion in derivative contracts. Global debt is approximately $200 Trillion.
Let’s relate those numbers to gold prices, gold mined each year, and gold mined throughout history.
According to McKinsey & Company total global debt as of December 2014 was about $...
In an Bloomberg Television interview Bill Gross of Janus Capital spoke with Bloomberg Television's Trish Regan about the outlook for Federal Reserve policy, the U.S. economy and his objectives at Janus Capital.
"Not even thin gruel is being offered to our modern-day Oliver Twist investors. You have to pay to come to the dinner table and then sit there staring at an empty plate."
"The interest rate can't be raised substantially even over the next two to three years."
"The US has escaped the liquidity trap that euroland and Japan are in. But, not necessarily for all time."
"[Low interest rates] keeps zombie corporations alive because they can borrow at 3 and 4 percent, as opposed to the 8 or 9 percent. It destroys business models. It's destroying the pension industry and in the insurance ind...
Despite low trading volume, a strong dollar, mixed economic and earnings reports, paralyzing weather conditions throughout much of the U.S., and ominous global news events, stocks continue to march ever higher. The world remains on edge about potential Black Swan events from the likes of Russia, Greece, or ISIS (or lone wolf extremists). Moreover, the economic recovery of the U.S. may be feeling the pull of the proverbial ball-and-chain from the rest of the world’s economies. Nevertheless, awash in investable cash, global investors see few choices better than U.S. equities.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then ...
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Chris Kimble's chart for KOL shows a recently beaten down ETF struggling to pull itself up from the ashes. As the chart shows, KOL has recently drifted down to levels not seen since the financial crisis of 2008-9.
Bouncing or recovering with energy in general, coal prices appear to have stabilized in the short-term. Reflecting coal prices, KOL has traded between $13.45 and $19.75 during the past year. Bouncing from lows, KOL traded around 2% higher yesterday from $14.26 to $14.48 on high volume. It traded another 3.6% higher in after hours to $15, possibly related to ...
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PSW Members - well, what a year for biotechs! The Biotech Index (IBB) is up a whopping 40%, beating the S&P hands down! The healthcare sector has had a number of high flying IPOs, and beat the Tech Sector in total nubmer of IPOs in the past 12 months. What could go wrong?
Phil has given his Secret Santa Inflation Hedges for 2015, and since I have been trying to keep my head above water between work, PSW, and baseball with my boys...it is time that something is put together for PSW on biotechs in 2015.
Cancer and fibrosis remain two of the hottest areas for VC backed biotechs to invest their monies. A number of companies have gone IPO which have drugs/technologies that fight cancer, includin...
Stocks got off to a rocky start on the first trading day in December, with the S&P 500 Index slipping just below 2050 on Monday. Based on one large bullish SPX options trade executed on Wednesday, however, such price action is not likely to break the trend of strong gains observed in the benchmark index since mid-October. It looks like one options market participant purchased 25,000 of the 31Dec’14 2105/2115 call spreads at a net premium of $2.70 each. The trade cost $6.75mm to put on, and represents the maximum potential loss on the position should the 2105 calls expire worthless at the end of December. The call spread could reap profits of as much as $7.30 per spread, or $18.25mm, in the event that the SPX ends the year above 2115. The index would need to rally 2.0% over the current level...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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