The SEC's Co-Chief Counsel On Derivatives (Such As Abacus), Worked As Outside Counsel For Paulson & Co, And Signed Off... On Abacus

Tyler Durden's picture

The surprises of SEC's infinite revolving door conflicts of interest never cease to amaze (or, for that matter end). Andrew Ross Sorkin has taken some time from his busy media whirlwind tour schedule and conducted some actual investigative reporting for a change, discovering that the SEC's co-chief counsel in charge of helping write derivative rules, Adam Glass, who previously testified about Goldman's Abacus, the culprit for the biggest SEC settlement in history against a Wall Street firm, had some very specific inside knowledge vis-a-vis Abacus. He signed off on it. Writes Sorkin: "Before working on the financial crisis cleanup, he helped create the opaque securities that contributed to the mess...For many years, Mr. Glass served as the outside counsel to Paulson & Company...And yes, Mr. Glass, in that role, signed off on Abacus, which was created specifically for the hedge fund to short subprime mortgages. Mr. Paulson handpicked some of the underlying investments in the derivative...The government, in its complaint, claimed that Goldman had "misstated and omitted key facts regarding" Abacus, including disclosing Mr. Paulson's role in its creation. The firm paid $550 million to settle the case, without admitting or denying guilt...his role once again raises questions about the revolving door between Washington and Wall Street at a time when public distrust about the agency and its lack of enforcement action against the culprits of the crisis is running high..."If he was involved in Abacus, how is he supposed to police it?" We are not sure if we are more confused by the fact that Sorkin has actually done some actual research or that yet another SEC crony is exposed to be in the pocket of Wall Street's rich and powerful. Actually, the former. Certainly the former.

More from Dealbook:

"The revolving door is such a dominant fact about the S.E.C.'s culture," said John C. Coffee Jr., a Columbia Law School professor. "You get people who go to Washington for one to three years and then go back to Wall Street."


The pattern has been well documented. According to the Project on Government Oversight, 219 former S.E.C. staff members filed 789 "postemployment statements indicating their intent to represent an outside client before the commission" from 2006 to 2010. In other words, the one-time government officials are representing Wall Street clients with matters before the agency.


While clearly there are questions about whether the public wants someone in government who just came from industry, the opposite argument can be made, too: It may be better to have the fox in the henhouse.


President Franklin D. Roosevelt "justified appointing Joe Kennedy as chairman of the S.E.C. with the line: 'You need to set a thief to catch a thief,' " said Professor Coffee. "That is the case for bringing in an industry expert."


After all, the best way for the government to stay ahead of financial innovations -- or at least not fall too far behind -- is to employ people who know them best.
Mr. Glass, who has long advocated more regulation of derivatives in certain instances, came to the S.E.C. with a strong finance pedigree. A graduate of Harvard and of Stanford Law School, Mr. Glass was a partner at Linklaters, where he founded the firm's structured finance and derivatives practice.


In addition to Paulson & Company, he counted Deutsche Bank and Lehman Brothers among his top clients. Mr. Glass was not involved in the controversial opinion that Linklaters issued to Lehman about a practice known as Repo 105 that has come under scrutiny. The tactic allowed Lehman to conceal billions of dollars on its balance sheet.


Mr. Glass took a big pay cut to become a civil servant. The average Linklaters partner made about $2.3 million in 2008, the year before he left, according to Legal Week, an industry publication. The most Mr. Glass could make at the S.E.C. is $233,000.


When I asked Mr. Glass about his deposition in the Tourre case and his role as the lawyer for Mr. Paulson in the Abacus transaction, he said, "Yes, that would be true." He then directed me to the S.E.C.'s spokesman, who quickly issued a "no comment."


Spokesmen for Mr. Tourre and Mr. Paulson also declined to comment.

And so forth. All those surprised raise your hands.

h/t Manal Mehta

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Cognitive Dissonance's picture


.....discovering that the SEC's co-chief counsel in charge of helping write derivative rules, Adam Glass, who previously testified about Goldman's Abacus, the culprit for the biggest SEC settlement in history against a Wall Street firm, had some very specific inside knowledge vis-a-vis Abacus. He signed off on it.

A perfect example of the revolving door that moves useless fools, puppets and occasionally a master from chair to chair. Make the mess, clean cover it up, then create more legal loop holes for the next thieving.

If I wrote a book of fiction about this stuff it would immediately be laughed all the way to the remainder table as totally unrealistic. Ya can't make this shit up.

Careless Whisper's picture

Make the mess... 

It's called Financial Innovation. Get with the program.


Cdad's picture

Any day now, Mary Schapiro is going to wrap up her 18 month long meetings with Lloyd Blankfein and Jamie Dimon about which SEC regulations she should enforce and which ones she should just forget about.  And when that happens, I'm quite sure she will finally have time to investigate the obvious corruption within her agency and take action to correct it.  

Any day now...holding my breath... 

Cognitive Dissonance's picture

Brother Cdad,

I don't care if you turn blue in the face and die an ugly death; I ain't doing mouth to mouth.

It's the principal of the thingy. I hope you understand?

Cdad's picture

Understood brother Cog,

When that time comes, I'll be looking forward to the sweet release, anyway...unless maybe if baby blythe is around.

No hard feelings on the matter.  Come what may...

scatterbrains's picture

shush! and eat your peas bitches.

TheLooza's picture

Good hire for the SEC.  At least they hired someone who understands complex financial instruments.


The SEC guys I deal with are (with some notable exceptions) pretty underwhelming in the brains department.

sun tzu's picture

They hire a bunch of $150K/yr lawyers who have no fucking clue about finance then hire a few corrupt finance guys who used to work for Wall Street and will be coming back for a nice director job after their stint with the SEC. That's why it doesn't matter how much regulation there is - the criminals will continue to get away with it while the honest ones will follow the laws and be handicapped.

bania's picture


Q: Why does Bernanke dislike gold so much?

A: Because he is Au-llergic.

rsnoble's picture

A U !!!!! Bring back my gold!!!

rsnoble's picture

That was a comment from some short fat dude that was a science teacher in high school trying to make a game out of learning the periodic table.

Imagine me surprise one early am sitting in class high as hell from dope when a 16lb bowling ball came roaring down the aisle past my desk from behend and smashed into the wall in front of the classroom at 50mph knocking shit everywhere.  That was the days lesson on inertia.  Wow, never a dull moment in that class.

TheLooza's picture

my bowling alley caps out at 14 lb balls.  Is that normal?

rsnoble's picture

The damage is done.  It will manifest soon.  Of course for avg joe it already has, but not near the degree of the full-on onslaught im expecting.  Not saying we don't have a circle-jerk for awhile after this debt crap passes, if it does which is most likely. 

rsnoble's picture

BTW downgrades=higher house payments not to mention other things.  Back to the good ole days 20% down payment?  Yeah right, houses will be flying off the shelf.  I would say nation of renters but a $1200 rent payment working at Mcdonalds??  Sounds like a lot of homeless and numerous families living in one house.  Unfortunately I have an extra residence on my property.  You wouldn't understand the 'unfortunate' comment unless you've been thru it.  Since I am doing ok, despite my previous bitchings(getting by, just not rolling in it like I was) I have a feeling I am going to be putting several names in a hat of friends of mine that are out of work with kids and someone will be getting a free place to stay in trade for 1/2 the yard work.  You have to be pretty selective, you'd be surprised how worthless some people can be and relatives are the worse.  I had a studio apt in my barn also but after getting fucked more than once I converted it into a gym and gave it to a couple cats. 

PulauHantu29's picture

Hi sresponse:

"Hey, it's a small world. I had no idea....."

lizzy36's picture

Jesus, Sorkin wrote this. Holy shit.

Pilar Queen, must be soooo proud.

Groundhog day isn't so funny anymore.

fuu's picture

Hanging's too good for them.

Burning's too good for them!

They should be torn into little bitsy pieces and buried alive!

Cognitive Dissonance's picture

Hanged, drawn and quartered sounds reasonable to me. Just sayin, what was good for 1351 England should be good enough for us.,_drawn_and_quartered


To be hanged, drawn and quartered was from 1351 a penalty in England for men convicted of high treason,

fuu's picture

High Treason sounds about right.

Cognitive Dissonance's picture

Thank God the powers that be play nicer now-a-days. Of course the citizens of Iraq, Libya, Afghanistan, Pakistan etc might have something to say about America playing nice.

game theory's picture

Our gov't looks alot like a criminal organization.  If you are not part of the con, you are getting conned.   Usually enough people get handouts from the game to stay pacified.  But lately, people have been seeing behind the curtain and are realizing just how much they are getting shafted.  So watch carefully for novel attempts to hide the manipulation that occurs between DC and Wall Street. For example...a debt deal that doesn't reduce the debt...or Fed rate setting actions that benefit only bankers...or asset seizures. 

A Man without Qualities's picture

When Enron collapsed, it turned out they had been able to hide loss making assets in subisidiaries , without having to consolidate, as long as there was a 3% outside ownership.  They set up a idea called Friends of Enron, which offered equity in the vehicles, but with a 95% loan (i.e. you put in 5%) and a guaranteed 10% dividend, with the understanding that you could sell at any time.  (There was a clever way around insider dealing restrictions that you were allowed to sell at any time as long as it was to repay a loan from the same entity, which was very popular with the likes of Tyco, Worldcom etc, but also useful here).   Anyway, it turned out many of those in Congress were in on this sweet deal, as I recall, something like 60 senators, I mean everyone was at it.  Michael Lewis wrote a great piece for Bloomberg, but it got pulled a few days later and never reappeared.  I remember he finished the article by asking the question - so who in the Whitehouse was also in on the deal?  

The "establishment" basically says that if something is legal, the question of morality is irrelevant, because laws are always fair.  It's just a shame the either don't read or don't understand most of what they vote on, because they always use these excuses.  

karzai_luver's picture

fukin class warfare again always with the class wellfa ooopppsss warfare.


Laws are for the punish the saps always.


pea soup with a dash of bankster cum on chillins!!!!


Pull the plow and keep your head down in the presence of your masters!





Mercury's picture

It's splitting hairs to call this guy a hero

and Paulson/Goldman thugs for doing essentially the same thing (albeit with greater resources at their disposal).

If Goldman Sachs is trying to sell you one of their shiny new custom designed structured products that they're taking the other side of....buyer beware.

unununium's picture

Are you kidding?

We outsiders try to profit by figuring out the rigged games, and resent your lumping us in with the game-riggers.

Totally different ballgame.

Tyler Durden's picture

About as far from splitting hairs as it gets. Burry worked within the confines of other people's rules and isolated the weakness in the system. Paulson created the rules so that he alone knew the weakness and hoped less sophisticated speculators would fall into his trap (that betting on America laziness is an almost guaranteed way to profit is a different story). Furthermore, looking at Paulson's recent track record, when unable to game the rules to his benefit, calling him a subpar investor may be generous.

Mercury's picture

Fine. I certainly don't want to take anything away from Burry and I'm not totally unsympathetic to your view here, Goldman/Paulson played dirty pool to a certain extent but  both Burry and Paulson believed in a contrarian macro story that had to actually play out in reality in order for them to profit from the bets they placed. 

Now maybe Goldman/Paulson cut some corners with how thay represented their wares to their customers (let's please dispense with this "clients" fantasy) but of course the strategy was to leave the other party holding the bag.  Alpha is a zero-sum game.  When you buy puts on mortgage insurers (Burry) you are either hedging something (like with insurance) or you're hoping (essentially) that the counterparty ends up taking it in the ass.

There weren't a lot of pure play ways to short the bloated sub-prime mortgage market in 2008 and both Paulson and Burry had to get a little creative.  Mostly, Paulson just had greater resources.

If dumb-ass Euro pension managers just made it a point to stay away from structured products they don't understand and that someone else designed that would do wonders for their principal preservation compared to a new boatload of regulations.

WonderDawg's picture

You still don't get it. Burry figured out the fraud and played it. Paulson had a hand in creating the fraud itself. One is opportunistic, the other is criminal.

JW n FL's picture

More for them and less for you.. and people will wonder how this could be? this is the status quo, the same status quo people choose to ignore.. at alll costs


so! stupid marches on! un-hindered!

Dr. Engali's picture

So what is the answer here? You can't have somebody fresh out of college watching the industry. The firms will run circles around them. They have to understand the industry and new products. Do we give them a big reward for thieves caught? Maybe this will get them to do their jobs rather than  be an insider for the firms.

WonderDawg's picture

The answer? Put a bounty on 'em. You want some real investigators to police the banksters? Give 'em a percentage (small percentage, of course, since we're talking billions) of whatever criminal activity they uncover and prosecute.

Boxed Merlot's picture

Give 'em a percentage


or perhaps 30 pieces of silver.

TheLooza's picture

the investigators would end up broke and in jail (if not dead) long before the investigated would.

WonderDawg's picture

Yeah, I know. However, I think we're on the cusp of a hard turn in the collective social mood, and what will be tolerated. We aren't there yet, but the tide is turning. People are slowly waking up, like a drunk coming off a four day bender, and not liking what they see. It might get ugly.

WonderDawg's picture

OT, but today has a flash crashy kind of feel to it.

sun tzu's picture

Nothing but maximum security prison time will slow the corruption

Sudden Debt's picture

This happens in almost every Monarchy.

Nothing strange about that.

It's how Tzars where able to run Russia back in the days becaue if there would be only 1 who controls it all officially, he would never have enough time to enjoy some golf, or a 5 week vacation....


Boxed Merlot's picture

Mr. Glass took a big pay cut to become a civil servant...


2.3 to .233 frn.  There comes a time when decimals are mere decimals but where power and wealth come together.  Anyone that thinks a legislator (or "fox in the henhouse" appointee),would be hampered in their lifestyle by the absence of their .200 frn annual business / re-election account contribution made on behalf of the government is indeed braindead. imo.

SheepDog-One's picture

Robo will be around later, after he finds some momo or other to crow about that rose a bit. Meanwhile he's angrily tearing up 'Warm regards' emails from Gentleman Jim Sinclair. 

Told ya not to dump that gold at $1,000 Robo! But you did get a lot of fun bashing it all the way up to $1,640 though, and thats what really matters.

digalert's picture

"revolving door conflicts of interest"


Totally unrelated, I think Turbo Timmies days are numbered. What do you want to bet someone like...oh I don't know, Jamie Dimon moves from NYFED to treasury? hmmm

Iriestx's picture

Im not sure, is this supposed to be the HOPE or the CHANGE?

Seasmoke's picture

better clawback all his ill gotten gains, before he loses every last penny (now that he no longer has inside info)

GoldBricker's picture

Next we'll have college students grade their own term papers. I don't know about you, but I'm giving my paper a AAA rating.

UP4Liberty's picture

Nothing like having the fox watch the hens!

Cognitive Dissonance's picture

And mighty plump hens they are as well.

Now where is the goose and that damn Golden egg?

Iriestx's picture

I wonder if you can eat a golden egg.

Cognitive Dissonance's picture

You can. At least based upon Burl Ives 1964 Christmas "Silver and Gold" TV special featuring chipmunks that eat Gold nuggets.