As Promised... Alledged Goldman Violations

Note: You must read the previous post to understand this one

The following are the SEC regulations that the SEC alleges Goldman violated:

From Section 17(a) of the Securities Act of 1933:

FRAUDULENT INTERSTATE TRANSACTIONS
SEC. 17. (a) It shall be unlawful for any person in the offer or sale of any securities or any security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) by the use of any means or instruments of transportation or communication in interstate commerce or by use of the mails, directly or indirectly—
(1) to employ any device, scheme, or artifice to defraud, or
(2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or
(3) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.

From Section 10 (b) of the Securities Act of 1934:

(3) INDEPENDENCE.—
(A) IN GENERAL.—Each member of the audit committee of the issuer shall be a member of the board of directors of the issuer, and shall otherwise be independent.
(B) CRITERIA.—In order to be considered to be independent for purposes of this paragraph, a member of an audit committee of an issuer may not, other than in his or
Sec. 11 SECURITIES EXCHANGE ACT OF 1934 66 her capacity as a member of the audit committee, the board of directors, or any other board committee—
(i) accept any consulting, advisory, or other compensatory fee from the issuer; or
(ii) be an affiliated person of the issuer or any subsidiary thereof.

From the Exchange Act Rule 10b-5:

Rule 10b-5 -- Employment of Manipulative and Deceptive Devices
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
To employ any device, scheme, or artifice to defraud,
To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security.

I am not a lawyer, but the case looks pretty tight to me. They obviously violated 10(b) of the 1934 act when they let Paulson pick the securities for the CDO they were selling. Clearly, Paulsons hedge fund was not "independent". The other two might be more difficult to prove, but that one looks like a slam dunk. Draw your own conclusions.

Sorry - still don't have the analogy - if anyone does, please comment.