A new article about the old SEC case against a young Goldman banker offers some intended takeaways, but this inadvertent one was the most interesting
The New York Times has a sprawling front page article today serving as an update on a year-old story. In April 2010, Goldman Sachs and one of its employees were sued by the Securities and Exchange Commission for fraud in conjunction with a complex security it sold to a client. Goldman settled the case, but it remains outstanding against the banker, who was in his late 20s at the time of the incident. This article's authors Louise Story and Gretchen Morgenson bill it as a hard-hitting investigative piece, though it provides little surprising insight into the case. Instead, its biggest revelation comes from their investigative tactics.
The article essentially investigates the status of the SEC's case against Fabrice Tourre, the only Goldman banker that was named in the suit. First, let's look at its four big takeaways, none of which are particularly shocking. Then, we'll look at its inadvertent takeaway that has commentators buzzing.
The Intended Takeaways
Tourre Couldn't Have Acted Alone
An unnamed source who worked on the Goldman mortgage desk wonders why Tourre was the only one that the SEC went after, according to the Times. "I just can't even begin to tell you how junior and insignificant his role was," the source told the paper. The team worked very closely together, so others would have been aware and involved in the deal at the heart of the SEC case.
Although this news might surprise some readers, anyone familiar with Wall Street knew this already. For starters, investment banks structure their groups into deal teams. But Goldman, more than any other, is almost obsessive about the importance of teamwork: it even shapes its recruiting strategy to favor athletes who it believes better understand how to succeed in a team-based environment. So it's hard to call this news, but it does raise the question: why was Tourre the only one who the SEC went after if an entire team was likely aware of and involved with the deal?
Why Tourre Was the Sole Target
The NY Times answers that question too. And this is another answer that no one should be shocked to hear: Tourre wasn't careful with his e-mails. You might remember all of the embarrassing and seemingly incriminating e-mails that were sent from the young banker that surfaced in the SEC filing a year ago. Someone with knowledge of the SEC case told the Times that Tourre's failure to be discreet made him an easy target.
There's little doubt that Wall Street has taken note of Tourre's mistakes. Any responsible investment banking managing director likely had a talk with his or her team about e-mail correspondence after the SEC case became common knowledge. The message would be clear: do not put in writing anything that can come back to haunt you. In particular, any internal, strategic views of the market should be said, not written. If Tourre had been a little more careful, he'd still be making millions as a Goldman banker.
Thrown Under the Bus?
But he's not. He's on paid leave (which you can bet is just his measly six-figure salary, without any seven-figure bonuses). The Times reveals that Tourre decided not to use the legal counsel that Goldman offered, as their interests have diverged. At this point, Goldman has swept the whole incident aside, having paid its $550 million fine. The case continues for Tourre, however. While Tourre is trying to portray himself as a part of a collaborative effort, Goldman says that he worked on a team but that he was "principally responsible" for the deal, according to the Times.
Of course, this is ridiculous. He was a mid-level banker. There must have been at least two levels of approval that the deal went through before it was allowed to close, even if Tourre was running it. If those in upper management had signed off, then they're as guilty as he is -- if not guiltier. Their greater expertise and legal counsel should have stopped the deal if it was unethical or illegal. So the lesson here is a good one for everyone, no matter their industry, to understand: a giant corporation will only have your back as long as it's in their best interest.
More Action May Follow
One last thing we already knew: authorities are hoping to take additional action against Goldman and probably other banks in regard to questionable actions taken during the housing boom and bust. When something like a housing bubble hits, there are surely some laws broken, whether on purpose or by accident. Any time a market booms, the rules come second to profits. The Times notes a few places where we might see additional charges brought.
The Inadvertent Takeaway: Destroy Your Old Computers
But perhaps the most interesting part of the story is the one the business journalists are buzzing about: where the Times got a fair portion of its information in this investigative article. It came from a laptop in the possession of artist-film maker Nancy Cohen. Here's where she got it:
The friend told her he had happened upon the laptop discarded in a garbage area in a downtown apartment building. E-mail messages for Mr. Tourre continued streaming into the device, but Ms. Cohen said she had ignored them until she heard Mr. Tourre's name in news reports about the S.E.C. case. She then provided the material to The Times.
This is amazing. Felix Salmon at Reuters speculates that the Times, Cohen, or her friend may have hacked this laptop to get those e-mails. Anyone reading this post has some experience with computers and e-mail addresses. Most computers are password protected, but all e-mail addresses are password protected. Passwords are also often changed, sometimes on a mandatory, set schedule. It's theoretically possible that this laptop was not password protected, that the password was stored in a browser or file, and that it remained unchanged during this time. If all those stars aligned, then the Times has incredible luck.
There are lessons here too -- even for those of us who do not work for Goldman Sachs. First, secure your computer. While a good hacker might be able to breach any system, your average reporter or artist cannot. Even if you don't find yourself the target of an SEC investigation, you probably don't want your e-mails or other personal information snooped through by someone who stumbles upon your old computer.
Of course, there's another way to avoid this: destroy your old hard drives. Whenever I throw away an old computer, I take pull out the hard drive and take a hammer to it -- even if there's nothing particularly exciting to find, other than some great philosophy papers on Aristotle from college. While some truly gifted computer forensics expert might be able to reconstruct a demolished hard drive or obtain glimmers of information from its parts, the chances of that occurring are quite slim.
Image Credit: Jim Young / Reuters