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To Anyone Reading About Paulson Tipping-off Goldman Sachs Hedge Fund Managers

James Groth
November 29, 2011, 1:11pm

Bloomberg released a piece today titled: “How Paulson Gave Hedge Funds Advance Word” which reports that former Treasury Secretary and former Goldman Sachs CEO, Hank Paulson gave nonpublic sensitive information about the pending collapse and conservatorship of Fannie Mae and Freddie Mac to a select group of hedge fund managers, many of them Goldman Sachs alumni, weeks before the event happened.

It has been widely read and hashed-out by numerous other news services. I recommend having a look.

The article is disturbing. One thing anyone reading the articles should note, however, is the mention that “there’s no evidence that [the hedge fund managers traded on the information] after the meeting; tracking firm-specific short stock sales isn’t possible using public documents.”

While it is true that this information is not public, it most certainly is attainable.

Firms trade under a specific login which tracks every trade, whether executed or not, entered on the exchange. This information is stored and used by brokerages and clearing houses for various reasons and can even be used to “break” executed trades should poor execution occur. This information can be used to determine precisely when and where and to the exact amount any firm traded in any listed security. And it most certainly can be used in this case to uncover whether the hedge fund managers capitalized on the nonpublic information provided by Paulson.

And why do we not know this information?

Because as much as Bloomberg and every other Tom, Dick, and Harry news service out there would like to furnish the information, it is not public, and therefore is not available to their inquiry. It is, however, available to the SEC. And they could have it all disseminated by tomorrow morning if they felt so inclined.

So, will that happen?

Probably not. The hedge fund managers present when Paulson was spieling out golden nuggets of trade secrets compromise The Asset Managers’ Committee established by the President’s Working Group. They are all an integral part in keeping financial information, market discipline, regulatory safeguards, and most notably, valuation within the status quo. Proof of insider trading by this group would be inconceivable. Thus, we’ll all continue to remain in the dark.

Kudos to Bloomberg, however, who was at least able to raise the question and through FOIA requests was able to obtain information shedding light on suspect behavior. It’d be nice if an agency with teeth carried-out their duty on this one.


James Groth is Research Associate


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