Forget the SEC civil lawsuits and the long-shot FBI criminal investigation, the sharkskin suits at Goldman Sachs appear to have broken a much more pedestrian law, New York's law against gambling. By acting as "bookmakers," a Class "E" Felony punishable by up to four years in jail, they've also provided a way for mom-and-pop mutual fund investors to recover their losses.
In New York, a person who lost an asset to an illegal bet is entitled to get it back. So if Goldman Derivatives were illegal bets, everyone who's investment lost value to a derivative scheme is eligible to recover it.
Here's the legal breakdown (and while this stuff is dry, the payoff is worth it")
Defines "Gambling" as when someone "stakes or risks something of value" on a contest or future event they don't control. upon the outcome of a contest of chance or a future contingent event not under his control or influence, upon an agreement or understanding that he will receive something of value in the event of a certain outcome."
Defines "Bookmaking" as "advancing gambling activity by unlawfully accepting bets from members of the public as a business, rather than in a casual or personal fashion, upon the outcomes of future contingent events."
States that, "Bookmaking" is "Promoting Gambling in the First Degree" a "class E felony" punishable by a jail term of up to four years.
And here's the big kicker while money bet by the loser may only be recovered within three months under New York law property doesn't have this same limitation. So if an investment (a non-cash asset) was lost to a derivative bet, the investor is entitled to sue the winner (and the bookie, in this case Goldman Sachs ) for damages.
Many people have pooled investments that rely on hedging (gain-loss averaging) to ensure a certain profit. Late last month, according to Investment News, the Securities and Exchange Commission announced they were investigating use of derivatives by mutual funds, traded funds and other instruments. If your mutual fund or retirement plan (for example) used a Goldman (or Goldman-like) derivative gambling scheme that originated in New York and you lost value because of it it appears that you are entitled to get it back. Courts may decide that It was an ill-gotten gambling gain.
If New York courts find that Goldman Sachs was really an illegal bookmaker, it might be time to throw that investment toward prison construction.