Goldman’s response to the SEC’s “Wells Notice” was just released.
It contains Goldman’s full response to the SEC when the SEC informed Goldman last September that the SEC was thinking of charging Goldman with fraud.
The response to the Wells Notice gives the firm the opportunity to present a defence. Goldman filed its response last September (and has presumably released it now to show its full defence without actually being viewed as defending itself).
Here’s are the key points Goldman made to the SEC (which the SEC subsequently ignored):
- Goldman’s disclosures were the same as everyone else’s disclosures.
- The buyers of these deals knew that someone was betting against them.
- The buyers of these deals knew that the parties betting against them participated in selecting the securities.
From the Response:
More fundamentally, if it were market practice to disclose reverse inquiries and participation by entities with long or short positions in selecting the reference portfolio, we would have expected to see many examples of that disclosure, because those activities were a regular feature of synthetic CDO transactions. Even the existing record reflects that ACA and IKB themselves offered views on reference portfolios in transactions in which they participated.
We have confirmed with outside counsel experienced in the drafting of CDO offering materials
that market participants were well aware that participants in CDO transactions routinely provided input on selection of the portfolio securities, and that it was not market practice to disclose their involvement in the portfolio selection process.
Goldman Sachs has no doubt that a fully developed record would reflect that both long and short investors often initiated transactions through reverse inquiries, and that they and other potential participants regularly expressed views as to the reference portfolio‟s composition.
Market participants understood that those activities occurred, and in the end all were fully capable of analysing the resulting portfolio and making their investment decision on the merits of the portfolio.
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