Buried In Goldman Sachs (GS) Fraud Buzz – SEC’s Failure On Stanford Ponzi

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 0

What a day today.  It began like so many in the past few months with low volatility and volume.  Another lazy Friday.  Then the big sell spike came just after 10:30AM EST.  Moments later the reason for the sell spike hit CNBC and an ordinary Friday turned into Freaky Friday.  The SEC was filing a civil fraud suit against Goldman Sachs (GS). Rarely a dull moment in the stock market eh?

The Goldman Sachs (GS) fraud charge by the SEC is big news and the blogosphere is buzzing with opinion as the facts continue to come out.  This won’t go away anytime soon and I’d imagine the SEC is out to prove it’s new and improved and ahem… actually doing its job.  Of course this may lead to overreactions and firms and individuals will be made examples of to prove they mean business.  Going after Goldman certainly makes a statement.

Part of moving on and improving for the SEC means coming clean on past mistakes including the blind eye to the Stanford and Madoff ponzi schemes.  Buried amidst the Goldman fraud buzz today was the SEC issuing a report on the Stanford ponzi.  Is it a coincidence that this report was issued on a day it would be buried on the back burner?  Not a chance.

The results of the investigation reveal why the SEC wouldn’t want this in the headline news.  The investigation reveals the SEC was suspicious of Stanford Financial as far back as 1997 when it believed returns on CD’s were highly unlikely.  They didn’t conduct a meaningful probe until 2005 and didn’t bring a lawsuit until last year.

The report singles out the former head of the SEC’s enforcement office in Forth Worth, Texas, Spencer Barasch, accusing him of quashing attempts to pursue Stanford then trying to represent him as a lawyer in private practice.  Apparently an examination official at the SEC said to her boss in 1997 “keep an eye on these people because this looks like a Ponzi scheme and someday it’s going to blow up”.   The report also says that in 2003 a letter from a Stanford insider was forwarded to the SEC saying in all caps that Stanford “will destroy the life savings of many.”

Current SEC Chairman SEC Chairwomen was out with a bit of damage control today saying the SEC has improved its examinations and  that much has changed in the agency’s leadership and procedures.  Hey, it only took 3 years to bring this charge against Goldman so they’re on the right track!

I’ve had a few people ask if it was a good time to invest in Goldman and to that I say I can’t tell you how to trade individually because it’s against SEC rules!  Seriously though, If I were trading GS I’d be looking at the 150 level.  It’s taken out key support at the 168 level where the 50 and 200 day moving averages, so  the next support area is around 148 – 150 where it found support in January.  Take out that level and it could be a rough road ahead for Goldman shareholders.  You can get a detailed trend analysis of Goldman here.

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