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Nice mention in todays Barrons . . .

Barry Ritholtz contends, contrary to the common view, that the case against Goldman is anything but weak. Like it or not, here comes financial reform.

Who ever dreamed the day would come when anyone aspiring to become another Lord Keynes or Milton Friedman would need to take a double major in economics and criminology to get his Ph.D.?

On Wall Street, not surprisingly, sentiment is strongly pro Goldman (at least when uttered publicly). Especially among folks who haven’t bothered to read the complaint, which, as we noted last week, was a model of clarity, the feeling is that the SEC has a weak case.

Not so, thunders Barry Ritholtz, who runs Fusion IQ and turns out a steady stream of spirited and highly informative pieces on the markets. On Friday, Barry chose to take on the notion the SEC’s case is feeble and show why it ain’t necessarily so. He seems ideally suited for the task because, as he confessed to us, he’s a recovering lawyer (an earlier professional incarnation) as well as a seasoned and savvy follower of markets.

Barry asserts the case against Goldman, far from weak, is very strong. “Based upon what is in the complaint, parts of the case are a slam dunk. The claim (by Fabrice Tourre, a former Goldman VP pushing the deal) that Paulson & Co. was long $200 million when it actually was short is a material misrepresentation — that’s Rule 10b-5, and it’s a no-brainer. The rest is gravy.”

He points out, too, that the complaint contains only the bare minimum the prosecutor, who he thinks is first-rate, has to reveal to file his complaint. “What you don’t see,” he explains, is all the e-mails, depositions, interrogations, phone taps and the like — “the arsenal of additional evidence” — that only the government knows about.

Nor does he buy the idea, commonly bruited about, that this is a complex case. Parts of it, he says, are a little more sophisticated than others, but what it boils down to in Barry’s view, is a simple case of fraudulent misrepresentation. The most difficult part of the case is likely to turn on just what is a “material omission.” Whether Paulson’s involvement in selecting mortgages was or not material is an issue of fact for a jury to determine. “But complex? Not even close.”

Barry is willing, moreover, to put his money where his mouth is, as evidenced by his offer at the bottom of his analysis: “I have $1,000 against any and all comers that Goldman Sachs does not win — they settle or lose in court. Any takers? My money is already in escrow — waiting for yours to join it. Winnings go to the charity of the winner’s choice.”

So far, as he tells it, the rush to take the other side of his bet has been underwhelming.

Abelson is way too kind, but I nonetheless am humbled by the sentiment.


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Barrons Up and Down Wall Street, APRIL 24, 2010

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