Goldman Sachs May Inspire a Redefinition of “Fiduciary Duty”

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

One bit of commentary I’ve noticed in the blogosphere following yesterday’s Goldman show is that the bank could toggle back and forth between being an investment advisor and a broker dealer when it came to any fiduciary duty it owed to investors in its crappy mortgage deals.

That may or may not be a loophole that needs closing, as Senator Collins’ line of inquiry suggested. Surely, banks like Goldman shouldn’t be able to use it as such.

But it’s important to remember that this is not an issue in the SEC’s case against the bank.


Take another look at the complaint. It charges Goldman with violations of three specific provisions of the securities laws, Section 17 (a) of the Securities Act of 1933 and Section 10 (b) and Rule 10-b (5) of the Securities Exchange Act of 1934. All of them relate to deceit, plain and simple.

Here’s the exact wording from the complaint: Goldman, the SEC charges, “employed devices, schemes or artifices to defraud, made untrue statements of material facts or omissions of material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or engaged in transactions, practices or courses of business which operated or would operate as a fraud or deceit upon persons.”

Nope, nothing about fiduciary duty there.

Goldman’s defense here, essentially, is that the bank didn’t have to disclose those facts the SEC refers to, because the investors in the deal in question were sophisticated or already knew or should have known that another party that was betting against them had helped select the portfolio, and that any other information it failed to disclose wasn’t material.

Nothing about fiduciary duty there, either.

So while the back and forth over that issue may be important to any legislation aimed at reforming such practices, it’s not strictly relevant to the legal case.

Of course, we’re talking about a jury trial here, so the atmospherics surrounding the case, including what the bank should have done that it wasn’t legally required to do, aren’t totally irrelevant.

Anyway, I was somewhat puzzled over the significance of the fiduciary issue when I stumbled across it earlier this morning. And I figured others might be as well.

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

One bit of commentary I’ve noticed in the blogosphere following yesterday’s Goldman show is that the bank could toggle back and forth between being an investment advisor and a broker dealer when it came to any fiduciary duty it owed to investors in its crappy mortgage deals.

That may or may not be a loophole that needs closing, as Senator Collins’ line of inquiry suggested. Surely, banks like Goldman shouldn’t be able to use it as such.

But it’s important to remember that this is not an issue in the SEC’s case against the bank.


Take another look at the complaint. It charges Goldman with violations of three specific provisions of the securities laws, Section 17 (a) of the Securities Act of 1933 and Section 10 (b) and Rule 10-b (5) of the Securities Exchange Act of 1934. All of them relate to deceit, plain and simple.

Here’s the exact wording from the complaint: Goldman, the SEC charges, “employed devices, schemes or artifices to defraud, made untrue statements of material facts or omissions of material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or engaged in transactions, practices or courses of business which operated or would operate as a fraud or deceit upon persons.”

Nope, nothing about fiduciary duty there.

Goldman’s defense here, essentially, is that the bank didn’t have to disclose those facts the SEC refers to, because the investors in the deal in question were sophisticated or already knew or should have known that another party that was betting against them had helped select the portfolio, and that any other information it failed to disclose wasn’t material.

Nothing about fiduciary duty there, either.

So while the back and forth over that issue may be important to any legislation aimed at reforming such practices, it’s not strictly relevant to the legal case.

Of course, we’re talking about a jury trial here, so the atmospherics surrounding the case, including what the bank should have done that it wasn’t legally required to do, aren’t totally irrelevant.

Anyway, I was somewhat puzzled over the significance of the fiduciary issue when I stumbled across it earlier this morning. And I figured others might be as well.

Related articles

Ex-KPMG Partner Will Be Giving the SEC a Bag Full of Money

We have an update on one of the members of Caleb’s fantasy KPMG insider trading golf team. From Law360: With a trial looming, a Georgia federal judge has granted approval of the U.S. Securities and Exchange Commission’s settlement with a former KPMG LLP partner accused of tipping off a stockbroker about the upcoming acquisitions of […]