Pigs. Unicorns. Money?
A scathing U.S. Senate panel report faulting Goldman Sachs Group Inc., Deutsche Bank AG and others for contributing to the financial crisis may provide ammunition for investor lawsuits accusing the banks of putting their own interests ahead of their clients’.
The 639-page Permanent Subcommittee on Investigations report won bipartisan support. It gave many examples of employees trashing the mortgage debt their banks were selling.
Among them: a top Deutsche Bank trader who privately described some of the securities as “crap” and “pigs,” and a Goldman salesman announcing, “I think I found a white elephant, flying pig and unicorn all at once” in identifying a potential buyer for debt that his bank created.
Lawyers for investors who say they lost money from the securities and the banks’ stocks consider the report a positive for their legal cases, though much of the underlying documentation and allegations were already known.
“The report and the evidence it represents will increase the value of settlements to investors,” said Jacob Zamansky, a partner at Zamansky & Associates who represents investors suing Goldman, Deutsche Bank and other banks.
“It puts into context Wall Street’s profit machine, that was betting there would be a subprime collapse,” he added. “Wall Street, and Goldman and Deutsche particularly, will be held liable for billions of dollars of losses they created.”
Built over two years with thousands of confidential emails and other documents, the report depicts Wall Street as a runaway machine that bundled risky debt into collateralized debt obligations and other types of securitizations to win big fees, even as it worried that the resulting mess could unravel.
Goldman Sachs Group spokesman Michael DuVally said the bank disagrees with many of the findings but takes the report’s conclusions seriously.
“We were intermittently net short during 2007,” he said. “We did not have a massive net short position.” He had no comment on possible litigation.
Michele Allison, a Deutsche Bank spokeswoman, said there were “divergent views” within the German bank about the U.S. housing market, but that these views were “fully communicated” to the market.” She also declined to comment on litigation.
Among other entities whose actions or inaction the report addressed are the bankrupt Washington Mutual Inc., credit agencies Moody’s and Standard & Poor’s, and regulators including the Office of Thrift Supervision.
The report details how investigators believe Goldman and Deutsche Bank deceived clients into buying securities that the banks suspected were likely to implode and bet against with their own money.
For example, it quotes Deutsche Bank’s top CDO trader in 2006 and 2007, Greg Lippmann, as repeatedly warning colleagues about the poor quality of residential mortgage securities backing many CDOs, calling some “crap” and “pigs.”
The report also said Goldman marketed a CDO, Timberwolf, at inflated prices to investors in Asia and Europe who had little familiarity with these securities.
It said Goldman kept marketing Timberwolf even after Thomas Montag, a senior executive who now runs investment banking at Bank of America Corp., sent a now-infamous email telling a colleague, “boy that timeberwof (sic) was one shitty deal.”
The report “confirms the allegations that banks made one series of representations publicly and privately knew the truth, which was 180 degrees from those representations,” said Darren Robbins, a partner at Robbins Geller Rudman & Dowd LLP, a prominent securities class-action law firm.
Its clients include the lead plaintiffs in a shareholder lawsuit over Goldman’s Abacus CDO. Goldman last year paid $550 million to resolve U.S. Securities and Exchange Commission claims that it hid how a client, the Paulson & Co hedge fund, helped assemble Abacus and then bet against it.
Lawyers including Daniel Brockett, a partner at Quinn, Emanuel, Urquhart, Oliver & Hedges LLP, said the report neatly “packages everything,” and helps investors’ lawyers scope out emails and other communications to bolster their cases.
Still, the report stops short of calling for sanctions against individual executives, traders and directors.
No senior bank officials have been held criminally liable in the United States for wrongdoing directly tied to the financial crisis.
Zamansky believes they still can be held to pay.
“I expect lawyers will require that people who helped create this mess will suffer financially,” he said.
(Reporting by Tom Hals in Wilmington, Delaware and Jonathan Stempel in New York; Editing by Martha Graybow and Matthew Lewis)
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