Secondly, according to that news report, Goldman claimed to have lost money overall, and received only about 150 million dollars from Paulson, while Paulson made some billion or billions of dollars.

Taken together, the loot is with Paulson. If Paulson is not a defendant, I do not see how the money can be retrieved through the current charges alone.

Don’t forget there is incredibly intense pressure on Khuzami to win this case. He knows well that he could be pounded on if he has to back off on any accusation, as if he had no merit and damaged the reputation of Wall Street— all kinds of unfair backlash. I happen to think that if that happens, it is mostly because he is prosecuting on laws designed to prevent Enron. Those laws are full of loopholes for the purpose of the prosecution of the betting on and promoting toxic mortgages. They are worse for the purpose of the retrieval of the loot from this kind of unethical acts. There is sufficient pressure to force the SEC to act in a conservative manner as is. I don’t doubt that some might argue that a conviction on ANY of such charges will send a stern message and serve as a strong deterrent. However, billions of dollars is a big lure for many who are expert at capitalizing on loopholes. They won’t stop unless the law is explicit on the matters, and not just tangentially forbidding it.

Still, now having it’s foot in the door, the SEC can depose people and search any available records for evidence of Paulson participation in the alleged fraud. First, I suspect they will find something (all bank robbers are videotaped) and, second, I don’t think it will take a very high standard of evidence to persuade a jury (if this comes to that) that Paulson was part of a plot. Maybe a judge could prevent that outcome, but I don’t think he/she would.

I also suspect a variety of criminal charges to be levied against the players in Abacus–and probably other GS–CDO deals. NY and Connecticut are already in the process. Foreign governments are now after GS & I expect that Paulson won’t be far behind.

As Simon Johnson put it, I think we’ve had our “Pecora moment:” The beginning of the end of the kind of deceptive and fraudulent trading tactics used by GS and other TBTF institutions, and their allies among hedge funds, etc.

Prosecuting on the conspiracy theory is one. Common sense makes many common taxpayers wonder if Paulson should be considered truly the mastermind. Accomplice, or even solicitation theories may be considered, to charge Paulson. However, as you pointed out, additional evidence is required. Nobody expects somebody committing an unethical act to make elaborate documentations of their communication. In real life, it is always the opposite. To expect your theory to be sufficient to work justice to meet the common taxpayers’ expectations, would be analagous to expecting and relying on murderers and bank robbers to make videos of their crimes for law enforcement. How often does that happen?

Therefore, despite your distracting argument, the bottomline remains the same. The relevant laws must be revised, and revised urgently. Otherwise, the hope will be much dimmer, for recuperating any substantial, or even any meaningful part of the loot. The American taxpayers deserve it. Our children and grandchildren deserve it.

Anyone who flirts with the prospect of the SEC faltering in its public service is likely to remain stigmatized for life. From here on in, they have it coming.

More broadly, I’m hoping the FBI will step up and apply the RICO statute to what has gone on in the financial sector. It will make taking down Italian organized crime look like a cakewalk.

The legal loophole still hampers the SEC from retrieving the money from John Paulson, even if the SEC wins this one.
The legislators need to act fast.

If a baseball franchise influences the players so that the team loses, and, in the meantime, bets against the team. Everybody knows it’s a crime, but the analagous betting behavior by the financial sector is not specifically codified as a “crime” yet by law.

The SEC can only prosecute under the misrepresentation and failure to disclosure law. So John Paulson cannot be charged and the profit pocketed by his Hedge Fund is not retrievable by this action.