Photo: Flickr – UGA College of Ag
A former hedge fund manager is accusing Goldman Sachs of illicitly managing his short positions as the market was melting down in 2008, causing his $1.5 billion firm to go under, the New York Times’ Gretchen Morgenson reports. As a result, the manager, Marc Cohodes, has turned to raising chickens on a farm in Northern California.
Cohodes recently testified in another Goldman lawsuit unrelated to the closing of his firm, Copper River Fund, that he believed the investment bank never borrowed the shares needed to perform a stock short.
Not borrowing shares needed to execute short positions is known as naked short selling. The tactic could be used to manipulate a stock price by masking the actual demand for a stock’s position.
The practice is technically legal.
But in this case, the share price of the stocks Copper was shorting ended up increasing after regulators issued a temporary ban on short-selling for hundreds of other stocks.
If Goldman never borrowed the shares, its own capital would have been exposed. That’s why, in Cohodes’ opinion, Goldman subsequently instructed Copper to unwind its positions.
Goldman has denied the allegations.
The firm is seeking to have Cohodes’ testimony and all other documents in the case sealed. Morgenson managed to obtain a copy of his transcript.
“I think Goldman Sachs is a racketeering entity that does whatever they can to make a dime without conscience, thought, foresight or care about ramifications,” Cohodes says. “I think they are cold-blooded and could care less [sic] about the law. That’s my opinion. I think I can back it up.”
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