SEC Charges Goldman Sachs with fraud

The SEC's fraud prosecution of Goldman Sachs will yield  a tsunami of coverage.   The complaint demands a trial by jury.  It therefore calls upon  the public - in federal court in Manhattan - to judge the conduct of one of the icons of the financial world - and thus all of what we still call Wall Street.


It illustrates the gap between the ethics of Wall Street and that of the legal profession.  The ABA Rules of Professional Conduct - the model for virtually every state - provide in R. 1.7 that "a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if: 
(1) the representation of one client will be directly adverse to another client; or (2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer."

Further, according to R. 1.10 if one member of a firm has a conflict of interest the entire law firm is disqualified.  That is a law firm cannot be on both sides of a controversy.  But as the NY Times graphic above shows Goldman Sachs bet heavily on both sides of the table - extracting fees from those on both sides of the bet.  Hedging your bets this is called.  Their defense so far centers on  knowledgeable risk-taking by their sophisticated clients, and the claim that Goldman itself bet long and lost.  See Goldman's statement HERE.


For the record - the complaint is HERE.  The SEC's first litigation press release is HERE.  The Times page on the SEC Complaint is HERE.  Times guest commentators on `What the Goldman Complaint Reveals' is HERE.