STOCK MARKET WATCH -- Monday, 2 April 2012

[Demeter]

21. Anger at Goldman Still Simmers By GRETCHEN MORGENSON

DO TELL!

http://www.nytimes.com/2012/03/26/business/goldman-sachs-denies-claims-it-led-to-copper-rivers-demise.html?_r=1

Just before the financial crisis began in September 2008, a prominent hedge fund appeared well positioned to take advantage of any turmoil in the markets. That fund, Copper River Partners, had made sizable bets months earlier against companies whose stocks it expected to suffer. Within weeks, however, Copper River, once a successful $1.5 billion hedge fund, was out of business, having unexpectedly absorbed losses on the very bets it thought would be profitable. While the market turmoil contributed to its problems, Marc Cohodes, head of Copper River, says that a significant force behind the failure was Goldman Sachs, which for years had been the firm’s broker. Testifying recently in a lawsuit that is unrelated to Copper River’s closing, Mr. Cohodes maintained that actions taken in the fall of 2008 by Goldman in the handling of trades for Copper River had done irreparable damage to the fund. His testimony, which has not been made public, was obtained by The New York Times.

Copper River relied on Goldman to handle its negative bets, known as short sales, in compliance with securities laws. These regulations require that before a short sale can be made, the shares must be borrowed; Mr. Cohodes said his fund had paid Goldman approximately $100 million to borrow shares over many years. In his testimony, Mr. Cohodes said he and his partners at Copper River had even come to wonder if Goldman had in fact borrowed the shares for the firm. Without the shares, Copper River faced losses, while Goldman could have come under regulatory scrutiny. When asked whether Goldman had borrowed the shares, Michael DuVally, a Goldman spokesman, said: “Mr. Cohodes is wrong. We met our obligations under applicable law.” He added that Copper River’s problems were the result of the extreme stress in the financial markets at the time.

Goldman has sought to seal the transcript of Mr. Cohodes’s deposition, which is part of a case brought by Overstock.com, an Internet retailer, against two of the biggest Wall Street firms. Overstock contends that the firms — Goldman Sachs and Merrill Lynch — failed to borrow company shares that they or their clients sold short, a practice known as naked shorting. Overstock says that the firms essentially evaded rules intended to prevent stock manipulations, and that its stock came under outsize selling pressure as a result.
Both of the firms sued by Overstock have denied the company’s accusations. They have requested that the judge overseeing the case seal all the documents generated in the discovery process, contending that their release would disclose trade secrets about the business, known as securities lending, which is highly profitable for the firms. The Times has joined three other media companies in asking the court to unseal the documents. Mr. Cohodes’s deposition, however, is not subject to the seal. Earlier this month, John E. Munter, the judge overseeing the case in California state court, ruled that many of the documents should be made public. The firms are expected to appeal the ruling.

Mr. Cohodes declined to comment beyond his deposition or to explain why he had not sued Goldman over his fund’s losses. He has left the money management business and now raises chickens on his farm in Northern California. ...“I think Goldman Sachs is a racketeering entity that does whatever they can to make a dime without conscience, thought, foresight or care about ramifications,” Mr. Cohodes concluded in his testimony. “I think they are cold-blooded and could care less about the law. That’s my opinion. I think I can back it up.” ....Copper River closed at the end of September 2008. The stocks it had been short soon collapsed.

THIS IS A MUST-READ...THERE'S A LOT MORE TO THIS STORY THAT I EDITED OUT