Goldman Sachs’ Worst Nightmare: Adoption of a Fiduciary Standard
Though Goldman Sachs claims it merely acted as a market-maker for the ABACUS deal, they really acted much more like “issuer” with an obligation to disclose all pertinent facts and risks, including the fact that the architect who helped choose the underlying securities was betting they would fail. Goldman claims that there was no absolute certainty the ABACUS deals would implode and has repeatedly said that they lost more than $90 million by owning some of the securities themselves (the result of the firm failing to find enough suckers to sample it’s toxic cooking).
For a firm with no moral qualms about betting against its own clients, it comes as no surprise that Goldman Sachs is lobbying hard against Congress passing a so-called fiduciary standard that would require the firm to always act in the best interests of its clients. Kicking off what is sure to be a full-court press on Capital Hill, Goldman’s President and COO Gary Cohn has warned that if market makers were forced to adhere to a fiduciary standard, the markets would stop functioning.
I wholeheartedly agree. Imposing a fiduciary standard on market makers would not be wise legislation. However, better defining the roles of “issuer” and “market-maker” and imposing a fiduciary standard on “issuers” would serve the best interest of all investors. Had this been done years ago, it’s highly unlikely Goldman would have dared to unload the ABACUS transactions.
On regulatory reform, Wall Street is pitching a shut out against investors. Congress needs to step up to the plate.
Jacob ("Jake") H. Zamansky is one of the country’s foremost authorities on securities arbitration law, the legal recourse for investors claiming broker wrongdoing, or for brokers claiming wrongful termination or other misconduct by their employer. Zamansky & Associates, the New York-based law firm he founded, represents both individuals and institutions in complex securities, hedge fund, and employment arbitrations.
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