Texas billionaire Sam Wyly needs to write a sequel to his self-congratulatory memoir 1000 Dollars and an Idea. Mr. Wyly and his brother Charles have been charged with 13 years of securities fraud yielding $550 million in illegal gains. The Wyly brothers stashed their loot offshore in the Cayman Islands and Isle of Man. Now that’s a story.
Goldman Sachs Group agreed to pay $550 million in federal fines and damages after misleading investors. That’s what Goldman earns in two weeks, points out the Washington Post‘s Matt Miller.
Goldman admitted only that its marketing information about the Abacus deal could have been a bit clearer (or weasel words to that effect). The Wall Street firm’s stock price rose after the announcement, adding more than $3 billion to Goldman’s market value, so the payout essentially made the firm $2.5 billion in one day.
There. That should teach them.
The Securities and Exchange Commission (SEC) charged Goldman Sachs with defrauding investors with a collateralized debt obligation (CDO) based on subprime mortgages. Goldman failed to disclose that it structured these unregulated instruments in partnership with a hedge fund that was also shorting these securities — betting against them. The CDOs failed to the tune of $1 billion, and investors and bond insurer MBIA were stuck holding the bag. Goldman made $15 million on the deal; the hedge fund made $1 billion when the CDOs went bad.
The Securities and Exchange Commission (SEC) has sent a letter to a score of bank CFOs asking if they used the same maneuver as Lehman Brothers to cook the books during quarterly reporting periods. In the trick, called Repo 105, a bank uses a short-term contract (a Repurchase Agreement) to exchanges assets for cash, agreeing to buy them back later at 105 percent of their value, but the firm reports the resulting cash as if it were a straight sale. This gives the temporary illusion of bank soundness and profitability.
More:
“SEC: Did others use Lehman accounting gimmick?” AP via Salon.
“SEC to Banks: Who Else Used Repo 105?” Marian Wang, ProPublica.
“Do other firms use Lehman’s accounting ‘drug’?” Alistair Barr, MarketWatch.
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