Gretchen Morgenson’s latest scandal

Larry Ribstein —  1 June 2011

Gretchen Morgenson (with Louise Story), in today’s front-page NYT “newsatorial” reports on and complains about the fact that the SEC’s civil case against Goldman’s Fabrice Tourre (“Fabulous Fab”) in connection with the Abacus deal has not been accompanied by other civil and criminal prosecutions. 

The story notes that Tourre worked closely with others at Goldman and hints that Goldman is forcing Tourre to use its lawyers so that he alone and not one of his more prominent colleagues will take the fall. Morgenson/Story don’t explain why the SEC is collaborating with Goldman in this fall-guy strategy, and indeed provide a more innocent explanation:  that the SEC had incriminating emails on Tourre that it didn’t have for any others.  Nevertheless, Morgenson/Story imply that the fire of more prosecutions should in justice follow the smoke of the Tourre case. That, of course, assumes Tourre was doing something wrong, which is far from clear in the Morgenson/Story article.

I’m also disturbed by the Tourre case, but for entirely different reasons.  I discussed the suit’s weakness when it was filed and observed that its real motivation was to help push through Dodd-Frank’s regulation of derivatives trading.  I noted that “this could be the deal that saves financial regulation and brings down the derivatives business.”  I’ve also criticized here and here the use of these allegations to gin up a new broker-dealer fiduciary duty.

Oddly enough, Morgenson & Story end their article with a discussion of allegations that Goldman employees “tried to manipulate prices of securities used to bet against mortgages.”  This differs from the allegation against Tourre that he failed to disclose John Paulson’s involvement in constructing the reference portfolio of the security he was selling.  In other words, whether others should be sued or prosecuted for what Tourre did has nothing to do with whether somebody should be sued or prosecuted for different manipulation regarding other securities, or for any other financial misdealings in the last couple of years. 

By somehow gluing all this together into a big ball of wax, Morgenson is following her common practice of “leveraging” a story to make it look bigger than it is.  For more examples of these and other Morgensonian journalistic practices, see my extensive criticism of many of her weekly columns.

Cutting through Morgenson’s typical blustering and rhetorical flourishes, there’s a lot less to this story than meets the eye.  Fortunately for Morgenson and her co-author, there are no prosecutors or government agencies scrutinizing whether they are over-selling their product.

Larry Ribstein


Professor of Law, University of Illinois College of Law

4 responses to Gretchen Morgenson’s latest scandal


    Jason: You are certainly entitled to your opinion on GM. But was it necessary to insult every other journalist by calling her “the best in the business”?


    I respectfully disagree. If you ever publish an article in the New York Times, you will come to understand why Morgenson’s writing seems to be “all over the place.” Everything goes through multiple lawyers and a cogent, hard-hitting piece that is chock full of damning facts in the end feels like it has been reduced to nothing. She is the best in the business and believe me her stuff is as substantive and evidence-based as it gets. It has to be, or those lawyers would never let it be published.

    north fork investor 1 June 2011 at 12:35 pm

    i agree that this Morgenstern column is all over the place and I do not believe based on the evidence out there I’ve seen that Tourre did anything wrong or for that matter wonder why Goldman settled with the SEC given the price exacted. (well actually i don’t wonder–CEO’s and Boards will do everything and anything to end the pain of the 24 hour media cycle (repeated endlessly).

    But I do believe singling out Tourre when the Goldman process of putting these products out there was so institutionalized has any basis in fact or legality.

    Another side note: I’m shocked that Tourre would dispose of a laptop in the garbage without totally wiping out the harddrive as the Goldman culture is very security conscious. Could this be a hoax?

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