Private Advisory Group

SEC Lawsuit Against Goldman Sachs

Posted by Steve

On Friday, April 16, 2010, it was widely reported in the media that the U.S. Securities and Exchange Commission (SEC) filed a civil lawsuit against Goldman Sachs Group, Inc. (“Goldman Sachs”) alleging investor fraud by failing to inform investors that a certain mortgage-based security product was designed with the help of someone who was also betting on that investment to fail.

The Investment Strategies team at Genworth Financial Wealth Management (GFWM), a major backroom resource we rely on for information, reached out to Goldman Sachs to better understand the scope of the inquiry and Goldman Sachs’ position on the issue. In order to provide our financial advisers with as much clarity around the situation as possible, we’d like to share our insights based on the conversations with Goldman Sachs:

• First, the product in question in this particular lawsuit was created and sold by the Securities Division of Goldman Sachs. This group is a separate division of Goldman Sachs and functionally unrelated to the investment management division that is responsible for the asset allocation models, Goldman Sachs mutual funds, and sub-advisory services provided to some of our clients. Specifically, the lawsuit is brought against the Securities Division and not the Global Tactical Asset Allocation Team who is responsible for the Goldman Sachs’ portfolios we work with – regardless, we are continuing to conduct due diligence on our own and we’ll report back to you what we find.
• Second, the transaction in question involved a privately structured product that was traded by sophisticated institutional investors. In contrast, the Goldman Sachs Asset Management products and Asset Allocation Strategies we use are delivered through highly regulated institutional channels. Plus, the Goldman Sachs sub-advisory services we employ are primarily in liquid fixed-income securities.

In addition, we’d like to include this statement from GFWM:

“The Investment Strategies team will be meeting with Goldman Sachs at their headquarters in the coming weeks as we accelerate our ongoing due diligence efforts in light of this news. Our due diligence process includes a deep examination of organizational and personnel structures both directly and indirectly related to the strategies provided through GFWM. While we expect and believe this issue to have little direct relevance to asset management services employed at Private Advisory Group, please be assured that we are working hard to stay abreast of the situation. In order to keep you updated, we will be making ongoing assessments of the possible impacts organizationally and of the possible effects on the asset allocation strategies and sub-advisory services being offered.”

Our Opinion

In our opinion, it may be premature to summarily ‘fire’ Goldman Sachs as an adviser until further details emerge and until the charges are either validated or dismissed. The Goldman Sachs’ track record has been solid for many years and in due course, it will become clear whether trusting this icon of Wall Street is justified or not.

Such problems as those currently being faced by Goldman Sachs’ Securities Division is one of the reasons we use a broad, robust platform of investment management teams. At Private Advisory Group, our investment teams give us a high degree of flexibility and coverage. While we cannot predict what may happen with any one firm, our unbiased approach to money management ensures we can monitor these types of events and best determine the appropriate course of action.

As always, we are not encouraged nor required to keep or use any particular advisory firm. Our primary incentive is to ensure that you are implementing the right strategies based on your goals and needs. If that means hiring, or firing, a firm then we can do so quickly, easily and without cost.

Should you have any additional questions or concerns, please do not hesitate to contact us.