This post continues from July 19, 2010, "'Settle Every Case' S.E.C. Settles With Victorious Goldman: Sacks Unopened".
Written In the course of expressing optimism about the outcome of the Securities and Exchange Commission's upcoming consideration of "whether to require brokers to have a 'fiduciary duty' to investors," their clients, here is an alternative version of the recent SEC settlement with Goldman Sachs of misrepresentation Claims filed against Goldman by the SEC:
The most notable enforcement case of Ms. [Mary] Schapiro's tenure can be read as an indication that she cares deeply about such issues.
Under current law, brokers serving retail investors are held to a limited standard requiring that investments be "suitable" to the buyer. But brokers for institutional investors have not faced even that minimal rule. That freed brokers to let clients view them as trusted advisers when pitching an investment. If and when the product blows up, the broker disclaims any responsibility for the bad investment decision made by the customer. The broker was simply a "counterparty" who took the other side of a trade that the customer wanted to do.
That essentially was Goldman Sachs's defense when the commission filed suit against it over a disastrous mortgage-backed securities deal that Goldman sold without telling customers that it had been partly created by the firm that wanted to bet it would fail. Goldman's settlement helps to establish a precedent that such sophistry must end.
Such sophistry most certainly must end, but even the SEC's Inspector General reportedly does not take an optimistic or positive view of whatever "precedent" was established in the SEC's recent settlement with Goldman. See Edward Wyatt, "Inquiry Begun of S.E.C. Timing in Goldman Fraud Case" p. B3, col. 3 (New York Times Nat'l ed., "Business Day" Section, Saturday, July 24, 2010).
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