Goldman Sachs, Crazy Eddie and 'the kiss of death'

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Any of you remember Crazy Eddie, the New York City discount chain that landed in bankruptcy after its original owners were sent to jail for all manner of  business fraud? Okay, it wasn’t as huge as Enron, but when Crazy Eddie went under many New Yorkers mourned not just the loss of a decent outlet for TVs but the awful commercials in which Eddie Antar bellowed that prices were INSAAAAANE!

Well, according to the former Crazy Eddie CFO — a convicted felon who now helps the good guys capture white-collar bad guys —  Goldman Sachs may have responded too hastily to the SEC charges relating to the deal it helped to construct with hedgie John Paulson. (If you haven’t read about the SEC fraud charges, WAKE UP! read the details here or click on any of my many numerous headline pulls in the right-hand column.)

In his post, Sam Antar explains both the psychological and legal tactics that the feds use to trap their prey.

Back in the day as the criminal CFO of Crazy Eddie, I received a surprise subpoena from the SEC late Friday afternoon. I had to wait until Monday before my attorneys had time to advise me on a course of action.

The “kiss of death” message is deliberately sent on Fridays to chill the bones of criminals. Some criminals wait in anxiety during the weekend until Monday to consult with their attorneys about what to do next. Other criminals or SEC targets like Goldman Sachs don’t want to wait until Monday. So they make rash decisions and major errors in prematurely reacting to the “kiss of death” message to their own peril and find themselves in legal quicksand.

Goldman Sachs chose not to wait until Monday and fully digest the implications of the SEC complaint. After a relatively short consultation with its attorneys, the company hastily issued a detailed press release later Friday afternoon that I believe will land it into deeper potential trouble. …

via White Collar Fraud: Did a Clever SEC Bait Goldman Sachs into Compounding Its Legal Problems With the “Kiss of Death” Message?.

(h/t The Big Picture)

Indeed, Goldman appears to have been caught completely off guard by the Friday announcement — even though it had received a Wells notice in July 2009, indicating that it was a target of an active investigation. The WSJ reports tonight that Goldman responded to the Wells notice in September. In March, Goldman contacted the SEC to check on the status of the investigation but no one responded to the request for an update. And apparently, Goldman didn’t mind that the lawyers at the SEC weren’t returning its phone call.

In his blog post, Antar zeroes in on Goldman’s assertion that the suit has no basis in “law and fact.”  Big mistake if it turns out the suit really does have a basis in law and fact. After his surprise indictment, Antar says he tried to cover up his tracks and ended up in much worse trouble; indeed, covering his tracks proved to be more troublesome than the original misdeeds. Antar warns that if Goldman’s knee-jerk statements turn out to be untrue or misleading, their troubles would only deepen.

And that’s not all Antar has to share with readers. It seems Antar and Goldman have something else in common besides the kiss of death. And that is Richard E. Simpson the SEC lawyer handling the Goldman litigation. Simpson was the man Antar took to calling the “Pit bull” for his ferocious and unrelenting pursuit of justice. He’s a formidable adversary even for the likes of Goldman Sachs.

Trader allegedly tried to eat his words to avoid SEC

The feds nabbed more bad guys today on Wall Street. Not the ones who cost us more than 7 million jobs or trillions of dollars in losses. Those guys are still  at large. No, today, the Securities and Exchange Commission announced with much fanfare that they had nabbed a bunch of guys who allegedly profited about $40 million on improper trading. So many bad guys, so little time.

The men charged at least were colorful — almost as entertaining as the executives who carelessly slammed the economy. There’s a guy dubbed Octopussy. And another one who takes a bite out of his cell phone. It’s like an undiscovered script from Get Smart: Maxwell wakes up one morning convinced that he is James Bond. Here, undoctored, is what happened in the non-too purple prose of Robert Khuzami, enforcement director at the SEC:

Arthur Cutillo, through his friend and fellow attorney Jason Goldfarb, tipped the inside information to a Wall Street trader named Zvi Goffer, who was referred to as “Octopussy” – as in the James Bond movie – because of his reputation for having arms in so many sources of inside information.Goffer would promptly tip the other traders we charge today, at times going to such extraordinary lengths to cover his tracks that he used disposable cell phones.

He gave one of his tippees a disposable cell phone that had two programmed phone numbers labeled “you” and “me.”

After the insider trading was complete, Goffer destroyed the disposable cell phone by removing the SIM card, biting it, and breaking the phone in half.

He threw away half of the phone, and then instructed his tippee to dispose of the other half.

Needless to say, these antics might be appropriate in a James Bond movie.

But Get Smart is the better comparison. And here for your viewing pleasure, the first episode in which we meet Maxwell Smart, his shoe phone (it’s a dial, not push button) and it rings and rings during a concert — much to the surprise and confusion of everyone around him. Now how prescient is that for a show produced in 1965?

[youtubevid id=”VEWmn8p_OoA”]

Feds dealt 2d blow to transparency at Freddie Mac

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First Bank of America. Then Freddie Mac.  Who’s next? The federal regulators seem intent on keeping material information out of the reach of the shareholders of publicly traded companies. Last week, we learned that the feds pressured Bank of American CEO to hide critical information on Merrill Lynch. He buckled. Freddie Mac pushed back when regulators tried to get it to hide how the Obama plan to help distressed mortgage holders would hurt the company’s bottom line. The Washington Post reports:

But when Freddie Mac’s executives concluded a few weeks ago that they had to disclose that the government’s management of the McLean company was undermining its profitability and would cost it tens of billions of dollars, the firm’s regulator urged it not to do so, according to several sources familiar with the matter.

Freddie Mac executives refused to bend. The clash grew so severe that they threatened to go to the Securities and Exchange Commission, which oversees corporate disclosures, to secure a ruling that the regulator’s request was out of line. The company’s regulator backed down, the sources said.

via Freddie Mac’s Duel With Regulator: Does It Report Government’s Role in Its Losses? – washingtonpost.com.

The article goes on to explain that Freddie Mac expected it could incur costs as high as $30 billion to help keep homeowners out of foreclosure, part of the Obama’s Homeowner Affordability and Stability plan. The Federal Finance Housing Agency had urged silence on this point but backed down. The fact was included in its 10-k filing with the SEC last month.

What else don’t the Feds think we can handle? As I wrote Friday, government can’t afford a credibility gap with the public if it expects to implement its ambitious agenda, not only in banking but in health and the environment and education.

And there may be another serious consequence to the dispute with the feds: Acting Freddie CFO David Kellerman apparently took his own life last week. The Washington Post reported that job stresses were taking a big toll on the executive and that he had wanted to resign. Instead, human resources had urged him to take time off. It’s something for everyone to contemplate.