Goldman Betting Against the Market? You Decide

It seems like Goldman Sachs is under fire from multiple sources nowadays. Not only are its managers being grilled by congressmen, but the entire organization is currently being investigated by federal prosecutors for a potential criminal fraud charge. This is just another step in the ongoing saga that started with the civil suit by the Securities and Exchange Commission.

In case you've been hiding under a rock for the past few weeks, the question is whether or not Goldman committed fraud by avoiding mentioning the fact that some of their securities were picked by John Paulson, who made huge profits betting against the market. In order to know whether damages are warranted or how much they should be, you need to consider not just whether Goldman Sachs deliberately misled investors, but whether disclosing the information at the beginning would have prevented their sale. The latter is more important to a civil suit.

The keys to the civil case are a set of internal emails that suggest that the action to hide Paulson's role was both deliberate and deliberately harmful (or at least negligent). The criminal case will likely hinge around these emails as well. The question is is whether they can convince the jury beyond a reasonable doubt. Previous attempts to prosecute investment firms involved in the investment collapse several years ago failed. So might this one.

So, what do you think? Did Goldman Sachs commit fraud by betting against the market it sold securities of?