Goldman’s blunder exposes shorts

J. Keith Johnson Senior Writer, The Gold Informant
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Perhaps you remember Greg Smith, a trader with Goldman Sachs up until early March. He quit the firm based on internal practices that clearly did not have the best interest of the client in mind. In a day of growing distrust of banks, Wall Street and just about any other financial institution, it seems that Goldman has gotten caught with its shorts down (pun intended).

Several years ago Goldman Sachs was sued by Overstock.com for what it claimed was price fixing. According to Overstock, Goldman sold naked shorts that it never covered, suppressing the price of Overstock shares. Basically, this means that Goldman was selling stock it never had, nor ever intended to have. The result is that shares are traded that don’t exist, increasing the supply artificially. Litigation was dismissed based on jurisdiction issues.

Goldman has repeatedly denied wrongdoing while Overstock has stood firm in its accusations. In fact, when Matt Taibbi of Rolling Stone contacted Goldman regarding this, Goldman responded with ad hominem attacks on Overstock, but didn’t present any facts to support its position:

Overstock pursued the lawsuit as part of its longstanding self-described “Jihad” designed to distract attention from its own failure to meet its projected growth and profitability goals and the resulting sharp drop in its stock price during the 2005-2006 period.

Interestingly, just a couple years later Overstock was thriving while Goldman Sachs was fleecing the taxpayers for bailouts.

Apparently Joe Floren, an attorney at Morgan Lewis, has been given the task of defending Goldman Sachs. But on Tuesday it seems that Mr. Floren may have exposed the very entity he’s been contracted to protect. Overstock, recognizing that it couldn’t get a trial, requested the release of sealed documentation that the company was convinced would expose Goldman. Here’s where it gets good. Floren, in defending Goldman’s position, apparently included some of the sealed documentation inadvertently.

The released information reveals some incredibly seditious activity on the part of both Goldman and Merrill Lynch (which is now part of Bank of America). It incriminates both for working together to hide these shorts and cover them on each other’s behalves when needed. If the rest of the sealed documentation is released, the shock waves could reverberate throughout the financial sector. There’s much more to the story.

Investors should be aware of this, especially in light of recent JP Morgan issues. The problems in the financial sector are far from over. In fact, they may be revving up anew. Consider carefully where you’re invested and how readily you can access your assets.

Readers will also recall that this is precisely the activity we suspect takes place in the metals markets. How long will these prices remain suppressed? We can’t know for sure. But sooner or later the pressure will release. Today’s action may have been the beginning. I’m looking forward to the ride up.

J. Keith Johnson’s Austrian and libertarian perspectives on current socioeconomic and geopolitical affairs are fueled by his insatiable desire to both discover and share the truth. A Goldco Direct affiliate, you’ll find his commentary on The Gold Informant website, as well as various Internet financial and news sites.