Goldman Sachs accused of naked shorting
26 March 2012 New York
Image: Shutterstock
A former hedge fund owner has added to testimony against Goldman Sachs in a case claiming the firm had practised naked shorting.
Internet retailer Overstock.com is in the process of suing Merrill Lynch and Goldman Sachs, contending that the banks failed to borrow company shares that they or their clients sold short, essentially evading rules intended to prevent stock manipulations.
Former head of $1.5 billion hedge fund Copper River Marc Cohodes added to the testimony, claiming Goldman Sachs bore part of the responsibility for his company’s failure.
Both of the firms sued by Overstock have denied the company’s accusations, requesting that the judge overseeing the case seal all the documents generated in the discovery process. Mr. Cohodes’s statements, however, are not subject to the seal, and the New York Times was present for his deposition.
According to Cohodes’s testimony, Copper River paid Goldman to act as its primary brokerage firm, conducting trades for the company and locating costly short shares.
Cohodes, who is now a chicken farmer in North Carolina, came to believe that Goldman was buying the stocks that he was short ahead of him, driving up their prices and making Copper River’s short-covering purchases even more costly.
Michael DuVally, a Goldman spokesman, said: “Mr. Cohodes is wrong. We met our obligations under applicable law.”
“I view stock loan sort of as the Mafia,” Mr. Cohodes said in his deposition. “It’s a black box where you don’t know people’s inputs and costs, and it was sort of: ‘Here’s the rate. If you want to borrow it, this is the rate.’ And it is what it is.”
Though it would seem that Cohodes’ deposition would help the Overstock case, there is no love lost between the two parties, with Overstock.com having sued Copper River in 2005 for stock manipulation. When asked in the deposition if he wanted to help Overstock, he replied: “Oh, absolutely not.”
Copper River closed at the end of September 2008.
Internet retailer Overstock.com is in the process of suing Merrill Lynch and Goldman Sachs, contending that the banks failed to borrow company shares that they or their clients sold short, essentially evading rules intended to prevent stock manipulations.
Former head of $1.5 billion hedge fund Copper River Marc Cohodes added to the testimony, claiming Goldman Sachs bore part of the responsibility for his company’s failure.
Both of the firms sued by Overstock have denied the company’s accusations, requesting that the judge overseeing the case seal all the documents generated in the discovery process. Mr. Cohodes’s statements, however, are not subject to the seal, and the New York Times was present for his deposition.
According to Cohodes’s testimony, Copper River paid Goldman to act as its primary brokerage firm, conducting trades for the company and locating costly short shares.
Cohodes, who is now a chicken farmer in North Carolina, came to believe that Goldman was buying the stocks that he was short ahead of him, driving up their prices and making Copper River’s short-covering purchases even more costly.
Michael DuVally, a Goldman spokesman, said: “Mr. Cohodes is wrong. We met our obligations under applicable law.”
“I view stock loan sort of as the Mafia,” Mr. Cohodes said in his deposition. “It’s a black box where you don’t know people’s inputs and costs, and it was sort of: ‘Here’s the rate. If you want to borrow it, this is the rate.’ And it is what it is.”
Though it would seem that Cohodes’ deposition would help the Overstock case, there is no love lost between the two parties, with Overstock.com having sued Copper River in 2005 for stock manipulation. When asked in the deposition if he wanted to help Overstock, he replied: “Oh, absolutely not.”
Copper River closed at the end of September 2008.
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