The Goldman Wells puzzle

By Felix Salmon
May 6, 2010
secrecy when it came to disclosure that it had received a Wells notice:

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I can understand the trading-desk mentality which went into the Abacus deal. What puzzles me more is Goldman’s incredible secrecy when it came to disclosure that it had received a Wells notice:

The Financial Industry Regulatory Authority also has opened an investigation into Goldman’s failure to report the Wells Notice that it received in September regarding trader Fabrice Tourre, a person familiar with the matter said on Wednesday.

Goldman was required to report the notice – which signals the likelihood of SEC charges – within 30 days of receiving it, but did not disclose it to FINRA until this week, the source said.

This seems to me to be a no-brainer of a disclosure, since there’s no way the firm is going to make any more money if it doesn’t disclose the notice. But not only did Goldman fail to make any SEC disclosure of the notice, it didn’t even inform Finra, despite industry requirements. Even after the SEC suit came and the importance of transparency in all dealings was abundantly clear, Goldman’s top lawyer Greg Palm refused to say on the firm’s earnings call whether the bank had received any more of these things.

It seems to me that there are two possibilities here. Either Wells notices are very rare beasts at Goldman, in which case such an unusual event with such large potential repercussions would seem to clearly mandate disclosure. Or otherwise Goldman receives them quite regularly, and they normally amount to nothing, in which case a steady drip of disclosures at the SEC would soon be discounted by the market as business-as-usual.

Either way, Finra and Goldman’s shareholders deserve to know when the bank is being investigated by the SEC. Is there any colorable reason at all for the bank to hide such things from its owners and regulators?

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