NO QUARTER FOR CORRUPTION (Focussing on The Fed./FRBS)

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The Circle of Greed: Sleeping With the Enemy
Just as the heat is finally being turned up on the shadowy world of hedge funds, just as the SEC is finally making some half-hearted attempts at regulating an industry that has been allowed to operate for years like gunslingers in the Old West, yet another industry regulator is walking off of the job in search of greener pastures.

Barry R. Goldsmith, Executive Vice President for Enforcement, will leave NASD in mid- March to return to private practice. After nearly 10 years as NASD's senior enforcement official, Goldsmith leaves with glowing accolades from his bosses at the NASD.

According to NASD Chairman and CEO Robert R. Glauber, "Investor confidence has been badly shaken by a series of scandals in the recent past, and a major key to rebuilding and maintaining investor confidence has been vigorous enforcement of our securities laws and regulations, Barry Goldsmith and his department have demonstrated to investors over and over again that there is a tough and tireless cop on the securities beat. We at NASD thank him for his enormous contribution, and we wish him every success in his new endeavors."

Among the lengthy list of Goldsmith’s accomplishments, which include investigations into arbitration abuses, boiler room fraud, and mutual fund share class sales practice abuses, one item on his resume’ stands out: investigations into hedge fund marketing practices.

So what company would be interested in luring another industry regulator away from their job? While industry representatives keep describing the numerous resignations as “opportunities in the private sector, ” stock market reform advocate Dave Patch put it this way: “Like rats jumping off a sinking ship, Regulators across the board are leaving in droves.”

Once again, let’s get straight to the point, let’s continue with our recurring theme of “The Circle of Greed.” Goldsmith will become a partner in the law firm Gibson, Dunn & Crutcher LLP. A simple preliminary Google search of Gibson, Dunn & Crutcher reveals this:

Among the plethora of areas of expertise that they list on their website, again, one stands out: “Representation of various investors and sellers, including private equity funds, hedge funds and others in the acquisition or disposition of non-controlling equity interests in various media and entertainment businesses, including motion picture studios, movie theater chains, internet based publishers and entertainment companies, a radio system network, a sports based multimedia network, and print publishers..”

In a 2003 investigation by New York Attorney General Eliot Spitzer into hedge fund Gotham Partners Management Company, where the hedge fund was accused of issuing negative research reports on companies that they were shorting, Gibson, Dunn & Crutcher attorney John Olson clearly came down on the side of the hedge fund industry in his comments on the topic. In an article in the Wall Street Journal, Olson had this to say: "You may try to influence prices, but since you are disclosing your position, how is it manipulation? It is important not to chill people from expressing negative views. That is different than spreading false rumors."


Gibson, Dunn & Crutcher represented notorious short seller Mark Cuban in his acquisition of the Dallas Mavericks, and in his acquisition of the American Airlines Center in Dallas. They also represented Mr. Cuban in connection with the NBA owner-approval process and other issues involved in NBA processes and procedures.

There were a total of 618 matches in a Google search of “Gibson, Dunn & Crutcher hedge funds,” so there are probably a lot more examples of their involvement in the wonderful world of hedge funds, but you get the idea.

So there it is. From investigating hedge funds to a law firm that represents hedge funds. Want to get another regulatory monkey off your back? Toss a few peanuts his way, and offer him a partnership while you’re at it. Voilà’! One less regulator shining a light into the darkness that has served the hedge funds so well for so long. At this rate, it won’t be long before the NASD and the SEC install revolving doors in the fronts of both of their office buildings, if they haven’t already.

Next?

Copyright ©2006 Mark Faulk
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