I’ve checked; it’s not an April fool’s joke. The seemingly untouchable financial firm, allegedly the main bank behind the financial crisis, is charged with fraud by the U.S. regulators. The story is just breaking. Here’s a copy of the original SEC filing, and a summary of what’s being reported so far.
“The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest, civil penalties and other appropriate and necessary equitable relief from both defendants.”
The U.S. Security and Exchange Commission
This is a short message from The Washington Post:
“Federal regulators charge Wall Street firm with civil fraud for involvement in subprime mortgage securities.”
For more information, visit washingtonpost.com:
The Wall Street Journal have just published the following article:
The Securities and Exchange Commission on Friday charged Goldman Sachs Group Inc. with defrauding investors by allegedly marketing a financial product tied to subprime mortgages without telling them a big hedge fund was on the other side of the trade.
The SEC’s civil lawsuit is one of the biggest moves by authorities in response to the financial crisis of 2007-08, and it sent Goldman shares sharply lower. The firm’s shares were down about 12% around midday, and the Dow Jones Industrial Average was off more than 1%.
In a statement, Goldman said, “The SEC’s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation.”
The lawsuit is connected to trades that brought big profits to a hedge fund, Paulson & Co. The fund’s chief, John Paulson, bet that the housing market would collapse and risky mortgages would tumble in value. Paulson & Co. made $15 billion in 2007, a payday that put Mr. Paulson in the pantheon of some of Wall Street’s most successful traders.
Mr. Paulson wasn’t charged by the SEC. He didn’t immediately respond to a request for comment.
According to the SEC, Goldman structured and marketed a synthetic collateralized-debt obligation, or CDO, that hinged on the performance of subprime residential-mortgage-backed securities. The CDO was created in early 2007 when the U.S. housing market and related securities were beginning to show signs of distress, the SEC complaint said.
“Undisclosed in the marketing materials and unbeknownst to investors, a large hedge fund, Paulson & Co. Inc., with economic interests directly adverse to investors in the [CDO], played a significant role in the portfolio selection process,” the complaint said.
The complaint said Paulson had an incentive to stuff the CDO with mortgage-backed securities that were likely to get into trouble. SEC enforcement chief Robert Khuzami alleged that Goldman misled investors by telling them that the securities “were selected by an independent, objective third party.”
“The product was new and complex but the deception and conflicts are old and simple,” said Mr. Khuzami.
By January 2008, 99% of the CDO’s portfolio had been downgraded, the complaint said. As a result of that bet, Paulson made about $1 billion and investors lost more than $1 billion, SEC said. Goldman was paid $15 million for the deal with Paulson.
The complaint didn’t name Paulson because the firm didn’t make any disclosures to investors, said Mr. Khuzami. Most SEC complaints involve improper disclosures.
The SEC also named Goldman employee Fabrice Tourre in the complaint, saying he was “principally responsible” for creating the CDO. Mr. Tourre, 31 years old, currently works in London as an executive director of Goldman Sachs International. A lawyer for Mr. Tourre couldn’t immediately be reached.
Read the full article at online.wsj.com
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