Goldman Tanking

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Kilgore Trout

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SEC has filed fraud charges against Goldman Sachs alleging it illegally profited from the collapse of the housing bubble in 2007 and 2008.
SEC alleges Goldman shorted a product it created called Abacus 2007-AC1.

SEC alleges Goldman packaged toxic mortgage assets together inside Abacus 2007-AC1 and duped unsophisticated speculators into buying into the product containing diverse toxic mortgage securities.
Goldman traders then took the other side of the trade and made billions of dollars betting against their own customers.

SEC alleges that Goldman had a duty to inform investors that they owned a major hedge fund that was betting heavily against the same assets they were marketing to the public. Abacus 2007-AC1 went on to lose 98% of its' start up value.

Be interesting to see how it plays out because I'm not sure what Goldman did is illegal. Just the way the market has always been.
People have opinions, place bets and see how it all plays out.
Goldman down $24.00 a share so far today.

http://www.nytimes.com/2010/04/17/business/17goldman.html

http://www.msnbc.msn.com/id/36597290/ns/business-us_business/
 
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Malibook

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Goldman Is Charged With Subprime Fraud

WASHINGTON—The Securities & Exchange Commission charged Goldman Sachs Group Inc. and one of its vice presidents for defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages.

The SEC said Goldman Sachs structured and marketed a synthetic collateralized-debt obligation, or CDO, that hinged on the performance of subprime residential mortgage-backed securities.

The CDO was structured and marketed by Goldman in early 2007 when the U.S. housing market and related securities were beginning to show signs of distress, the SEC complaint said.

According to the SEC, Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.

"Undisclosed in the marketing materials and unbeknownst to investors, a large hedge fund, Paulson & Co. Inc. ["Paulson"], with economic interests directly adverse to investors in the [CDO], played a significant role in the portfolio selection process," the complaint said.

"The product was new and complex but the deception and conflicts are old and simple," said Robert Khuzami, Director of the Division of Enforcement.

The SEC also named Goldman employee Fabrice Tourre in the complaint, saying she was "principally responsible" for creating the CDO.

"Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party," Mr. Khuzami said.

The Goldman complaint is part of the SEC's investigation into investment banks and others that securitize complex financial products tied to the U.S. housing market as it was beginning to show signs of distress, according to Kenneth Lench, Chief of the SEC's Structured and New Products Unit.

In February, the SEC settled with State Street Corp. on charges that the bank misled investors about its exposure to subprime mortgages. In that case, the SEC said the bank selectively disclosed information about its subprime mortgage investments to specific investors.

http://online.wsj.com/article/SB10001424052702303491304575187920845670844.html?ru=yahoo&mod=yahoo_hs
 
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alexmst

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(Fortune) -- The Securities and Exchange Commission on Friday charged Wall Street's most gilded firm, Goldman Sachs, with defrauding investors in a sale of securities tied to subprime mortgages.

The SEC said it charged New York-based Goldman (GS, Fortune 500) and a vice president, Fabrice Tourre, for their failure to disclose conflicts in a 2007 sale of a so-called collateralized debt obligation. Investors in the CDO ultimately lost $1 billion, the SEC said.


The SEC's civil fraud complaint alleges that Goldman allowed hedge fund Paulson & Co. -- run by John Paulson, who made billions of dollars betting on the subprime collapse -- to help select securities in the CDO.

Goldman didn't tell investors that Paulson was shorting the CDO, or betting its value would fall. When the CDO's value plunged within months of its issuance, Paulson walked off with $1 billion, the SEC said.

"The product was new and complex but the deception and conflicts are old and simple," said Robert Khuzami, director of the Division of Enforcement for the SEC.

A Goldman spokesman didn't immediately return a call seeking comment, but in a statement the bank said that "the SEC's charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation."

Goldman shares tumbled 13% following the midmorning announcement, wiping out $12 billion of shareholder value. Shares of Deutsche Bank (DB), another big player in the structured securities markets of the bubble era, tumbled 8%.

The shares of JPMorgan Chase (JPM, Fortune 500), Citigroup (C, Fortune 500), Morgan Stanley (MS, Fortune 500) and other big banks declined between 3% and 5%, as investors all over Wall Street heard the footsteps of an apparently revitalized federal law enforcement apparatus.

"This litigation exposes the cynical, savage culture of Wall Street that allows a dealer to commit fraud on one customer to benefit another," Chris Whalen, a bank analyst at Institutional Risk Analytics, said in a note to clients Friday.

Khuzami said the case was the first brought by a new SEC division investigating the abuses of so-called structured products such as CDOs in the credit crisis. He said the investigation continues but declined to comment further.

"We continue to examine structured products that played a role in the financial crisis," Khuzami said in a phone call with reporters. "We are moving across the entire spectrum of products, entities and investors that might have been involved."

The SEC alleged that Paulson & Co. paid Goldman Sachs approximately $15 million for structuring and marketing the deal, known as Abacus 2007-AC1. Paulson & Co. wasn't immediately available for comment.

A CDO is a financial instrument backed by pool of assets, typically loans or bonds. In this case, the instrument in question is a so-called synthetic CDO -- which is backed not by actual loans but by a portfolio of credit default swaps referencing residential mortgage-backed securities.

While many CDO deals performed poorly, particularly in the latter stages of the housing bubble, the Abacus CDO at the center of this case blew up particularly quickly.

Within six months of the deal's closing, 83% of the residential mortgage-backed securities in the portfolio had been downgraded, the SEC said. Within nine months, 99% had been downgraded.

Khuzami said the SEC is entitled to disgorgement of ill-gotten gains as well as penalties that will be considered "at the appropriate time."
 
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Rockslinger

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jpmelito said:
It's an entirely different animal when you're shorting the same instrument that you created.
Click to expand...
This is the crux of the issue. Selling shit to you that they are shorting behind your back. It should be illegal. It is definitely unethical. I hope they take Goldman "The Evil Empire" Sachs down. It will benefit all of mankind. Plus, Goldman gives a particular ethnic group a bad name.
 
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Big Sleazy

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What GS did was fraud end of story. But you'll notice that it was a Civil Suit that was filed by the SEC. Which means that there's no jail time involved. They'll get off with a fine when in fact there actions are destroying the US economy. Meanwhile Bernacke and Geitner and there pals are walking away with humdreds of millions of dollars. This is bogus. They should be strung up and drawn n' quartered. And then burn down the Federal Reserve and start over again.

BS
 
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Rockslinger

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Big Sleazy said:
What GS did was fraud end of story. But you'll notice that it was a Civil Suit that was filed by the SEC. Which means that there's no jail time involved.
Click to expand...
Damn, no jail time. They will get away with paying a fine just like the tobacco companies.
 
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djk

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the hobby needs more capitalism
I think they're a bunch of crooks but they will walk away from this unscathed.

If you trade, GS is on sale.
 
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danmand

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danmand

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danmand

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