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Comment by rayiner | Hacker News Reader

Fraud has a very specific meaning, and what Goldman admitted to wasn't fraud (especially not criminal fraud). Here is the actual statement of facts: https://www.justice.gov/opa/file/839901/download. They admitted to doing what companies do every day: overselling a product they knew was crappy while having shoddy Q&A.

It's also worth noting the procedural posture of the government's case against Goldman. It's under FIRREA, which allows the government to bring a civil action for violation of 14 specific criminal laws. The burden of proof in the civil action is the lower civil standard of proof, instead of the high "beyond a reasonable doubt" standard.

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IANAL but I was able to look this up.

"While the exact wording of fraud charges varies among state and federal laws, the essential elements needed to prove a fraud claim in general include: (1) a misrepresentation of a material fact; (2) by a person or entity who knows or believes it to be false; (3) to a person or entity who justifiably relies on the misrepresentation; and (4) actual injury or loss resulting from his or her reliance."

http://criminal.findlaw.com/criminal-charges/fraud.html

The statement below appears to cover 1 and 2 and we already know 3 and 4 to be true.

"Goldman received information indicating that, for certain loan pools, significant percentages of the loans reviewed did not conform to the representations made to investors about the pools of loans to be securitized, and Goldman also received certain negative information regarding the originators’ business practices."

https://www.justice.gov/opa/file/839901/download

rayiner, given your legal background, do you consider this type of misrepresentation to be criminal fraud irrespective of what regulators have achieved to date?

I think criminal prosecution should be reserved for the most outrageous and clear-cut misrepresentations. Look at the examples on pages 6-9 of the government's statement of facts. If any of those folks should go to prison? Should the folks at Microsoft who keep stating that the latest firmware update fixes Surface Book/Pro 4 sleep issues, even though people keep having troubles getting their laptop to sleep properly, also go to prison?

I don't see any value in that comparison.

Goldman Sachs, as part of a certain class of institutions, plays a systemic role in the economy and as such, Goldman Sachs, its affiliates and the activities under discussion are subject to innumerable pages of regulations enforced by several different regulators. There is no equivalent regulation for Microsoft's firmware update announcements.

> I think criminal prosecution should be reserved for the most outrageous and clear-cut misrepresentations.

Is this the same standard you apply to any type of criminal prosecution?

I agree with you about Goldman, but we don't yet have the law that makes materially harmful commercial misrepresentations made by systemically important financial institutions a felony. We should, but we don't.

And, one of the very first things the founders said when they booted up this country was "no ex post facto laws".

> we don't yet have the law ...

False.

http://www.ag.ny.gov/sites/default/files/pdfs/bureaus/invest...

http://www.bloomberg.com/news/articles/2011-06-03/goldman-sa...

The link below is a general discussion of securities fraud and related legal theory. Goldman is used as an example while discussing the case settled with the SEC in 2010.

"The law allows a case like the one against Goldman to be alleged and argued as securities fraud even if the seller merely failed to exercise due care as to whether the buyer was misled about the nature of the securities being sold or how those securities were selected. The law further permits a claim of fraud—even when brought by a private litigant—to be founded on an allegation of recklessness and allows the litigant to assert, in essence, gross negligence as to whether the buyer was misled. If one takes the federal appellate decisions on the issue at face value, the law would appear to support a criminal conviction in a case like Goldman’s even if the seller were merely reckless."

http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=...

And, one of the very first things the founders said when they booted up this country was "no ex post facto laws".

Right next to "no bills of attainder", which is pretty much exactly what people want to pass.

The products were designed to be safe even if a large percentage of the underlying assets went into default. They did not represent the pools as free from assets that would default. They represented the pools as diverse.

I think misrepresentation is fraud, particularly when we are talking about selling listed, US securities, but I am not a lawyer.

It is! But to bring a felony case that would survive the standard of proof in criminal court, prosecutors would have to convince a jury that the people at Goldman who decided to or actually made some flawed statements knew that those statements were categorically false --- could not under any circumstances have been true --- and that the specific things about which they were knowingly and categorically wrong were material: that reliance on those statements benefited Goldman and harmed the people who relied on them.

That's an argument that we penetration testers would say "has a lot of attack surface".

This. There's a big difference between what you think is probably true and what you can prove, particularly when the law stipulates a state of mind. Prosecutors don't usually pursue these kinds of cases unless the defendant was dumb enough to brag to his friends or leave an email trail.

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