SEC did not deliver justice for the American people

It’s a start. Goldman Sachs is guilty of jaywalking.

Yesterday the giant Wall Street firm with the outsized Washington connections agreed to pay a fine of $550 million — which is also known as chump change in financial circles — and admitted that it made a “mistake” in how it marketed to clients who invested in a collateralized debt obligation (CDO) security with the forgettable name Abacus-2007 AC1.

Back in April, the SEC snapped out of its decade-long trance and somehow noticed that Goldman had placed in this security a bunch of mortgages that were carefully chosen by a Wall Street firm that was taking the opposite bet that these loans would fail.

The SEC thought this was fraud. Goldman, it alleged, should have told investors.

Goldman thought not.

In fact, when these allegations were first made, Goldman rose up mightily and bellowed that it would “vigorously contest (the charges) and defend the firm and its reputation.”

As I said, this is a start. And not a bad one at that, especially since the SEC didn’t totally cave in.

But there’s more that needs to be done — much more. I don’t know if it is a coincidence or not that the Goldman settlement came on the same day that Congress passed a bill that intends to reform the financial system.

According to President Obama, consumers “are going to get a lot more information” because of these changes and Wall St. won’t be able to go crazy again.

Certainly the investors in Abacus-2007 would have been helped by knowing that investor John Paulson was helping Goldman select the mortgages in the CDO at the same time he was in the process of making a bundle — no, make that a billion bundles — betting that the mortgage market was about to tank.

The investors being cheated in this deal were sophisticated folks who Goldman argued should have known what they were getting into and who should have asked more intelligent questions.

What Goldman did to the Abacus investors was appalling.

But we still don’t know even a sliver of what this firm was capable of and never will until someone with legal authority steps in and asks the questions that I’ve been asking.

Was Goldman also cheating small investors, the people that FinReg is supposed to be protecting?

As I’ve been documenting for several years, Goldman’s connections in Washington were astounding.

Goldman’s chief Lloyd Blankfein and then-Treasury Secretary Hank Paulson, unrelated to John Paulson, for years spoke regularly even though anything Goldman would have found out this way could easily have been considered illegal inside information.

Now that we know Goldman is capable of jaywalking, it’s time for the SEC, or the Justice Department or some ambitious state Attorney General to learn the whole story.

The American public deserves to know. Then the system can truly be reformed and fixed. [email protected]