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SEC Charges Goldman Sachs With Fraud On Subprime Mortgages, Paulson & Co. Implicated
Washington, D.C., April 16, 2010 — The Securities and Exchange Commission today charged Goldman, Sachs & Co. and one of its vice presidents for defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter.
The SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). 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.
"The product was new and complex but the deception and conflicts are old and simple," said Robert Khuzami, Director of the Division of Enforcement. "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."
Kenneth Lench, Chief of the SEC's Structured and New Products Unit, added, "The SEC continues to investigate the practices of investment banks and others involved in the securitization of complex financial products tied to the U.S. housing market as it was beginning to show signs of distress."
The SEC alleges that one of the world's largest hedge funds, Paulson & Co., paid Goldman Sachs to structure a transaction in which Paulson & Co. could take short positions against mortgage securities chosen by Paulson & Co. based on a belief that the securities would experience credit events.
According to the SEC's complaint, filed in U.S. District Court for the Southern District of New York, the marketing materials for the CDO known as ABACUS 2007-AC1 (ABACUS) all represented that the RMBS portfolio underlying the CDO was selected by ACA Management LLC (ACA), a third party with expertise in analyzing credit risk in RMBS. The SEC alleges that undisclosed in the marketing materials and unbeknownst to investors, the Paulson & Co. hedge fund, which was poised to benefit if the RMBS defaulted, played a significant role in selecting which RMBS should make up the portfolio.
The SEC's complaint alleges that after participating in the portfolio selection, Paulson & Co. effectively shorted the RMBS portfolio it helped select by entering into credit default swaps (CDS) with Goldman Sachs to buy protection on specific layers of the ABACUS capital structure. Given that financial short interest, Paulson & Co. had an economic incentive to select RMBS that it expected to experience credit events in the near future. Goldman Sachs did not disclose Paulson & Co.'s short position or its role in the collateral selection process in the term sheet, flip book, offering memorandum, or other marketing materials provided to investors.
The SEC alleges that Goldman Sachs Vice President Fabrice Tourre was principally responsible for ABACUS 2007-AC1. Tourre structured the transaction, prepared the marketing materials, and communicated directly with investors. Tourre allegedly knew of Paulson & Co.'s undisclosed short interest and role in the collateral selection process. In addition, he misled ACA into believing that Paulson & Co. invested approximately $200 million in the equity of ABACUS, indicating that Paulson & Co.'s interests in the collateral selection process were closely aligned with ACA's interests. In reality, however, their interests were sharply conflicting.
According to the SEC's complaint, the deal closed on April 26, 2007, and Paulson & Co. paid Goldman Sachs approximately $15 million for structuring and marketing ABACUS. By Oct. 24, 2007, 83 percent of the RMBS in the ABACUS portfolio had been downgraded and 17 percent were on negative watch. By Jan. 29, 2008, 99 percent of the portfolio had been downgraded.
Investors in the liabilities of ABACUS are alleged to have lost more than $1 billion.
The SEC's complaint charges Goldman Sachs and Tourre with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5. The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest, and financial penalties.
# # #
For more information about this enforcement action, contact:
Lorin L. Reisner
Deputy Director, SEC Enforcement Division
(202) 551-4787
Kenneth R. Lench
Chief, Structured and New Products Unit, SEC Enforcement Division
(202) 551-4938
Reid A. Muoio
Deputy Chief, Structured and New Products Unit, SEC Enforcement Division
(202) 551-4488
Full Lawsuit:
Fabrice Tourre's FINRA record:
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Totally agree, on the Facism label. In short, oligarchial control of goverment and "the people" through market manipulation with complex leveraged derviatives promoted by lobbyists to promote indentured slavery, and a goverment that serves the banks.
anyone else find it funny that these charges came exactly one day after tax day?
Definition of Pure Evil: Cook the books for Greece and dupe the EU... cook the books for JP and dupe some German banks. Is this a way to earn money...?
This is not the behaviour of "a few rogue individuals"... this is the patent behaviour permeating throughout a well trained evil institution.
This evil must come to an end... GS must be taken out of its corrupt misery.
There are such things as "ethical" financial institutions, where money is earned in an honest manner... however, these institutions are smothered and cannot thrive as long as GS is around.
Do all you can to put a stop to this evil.
BTW, the SEC said that it was an ex-porfolio manager from JP's shop who dropped the "dime" on GS... anybody know who this whistle-blower might have been...?
for some perspective on the civil charges against Goldman and their alleged $1,000,000,000 fraud, there is this from Naples Florida:
The SEC has taken its time to build their case (also waiting for The Big Short to hit Amazon) so it should stand up to rigorous scrutiny in court. As a political punctuation mark for delivering "financial reform", the timing is...eh, convenient. If you have a look at their efforts to reform Reg AB etc...you will see that they are finally getting around not just to the ethics and legality points but to the very important matters of the disclosures and providing explicit information.
Sunlight is the best disinfectant for this rot.
The only people with buildings as nice as Goldman's new HQ are the casinos in Vegas. Who pays for the casinos? Gambling losses of the patrons with the odds always in the house's favor. Who pays for Goldman? Gambling losses by its customers, transaction fees, and scalping chunks of money out of the financial markets with fancy computer programs, with the odds in the houses favor. And inside information of course. Nothing like front running.
If I practiced medicine the way they transact business, how would it go?
Hi Mr. Sachs, how are you today?
"I have a pain in my ass."
After examining your ass, I think you have a boil. I can lance it for you, for a fee, and give you antibiotics, for a fee, and you can come back in a week, for a fee. And right after I lance your boil I'm going to buy stock in the needle company, and the antibiotic company, and I'm going to go short you're bicycle team.
But I also have this amazing new drug called shit. If you eat shit the boil should go away within a week. I make and sell the shit myself.
Being a good salesman as well as doctor, I sell Mr. Sachs my shit, then I take out a life insurance policy on him, I start romancing his wife (who will soon be single), and I have my son apply for his job (which will soon be open). And of course he still pays me for the office visit and the shit.
Great analogy! Don't forget about the web of deceit that extended all the way to the shit producers. Making the shit from toxic waste that was radioactive.The motgagees that were fed this garbage by the mortgage writers, and yet it was clasified by the FDA (rating agencies) as AAA . Oh, the tangled web Goldman Shit wove.
the doctor is in.
«————glad to see you smiling º º
:
……
Any CDO squared, cubed, or synthesized, will be scrutinized. Deutsche quants sporting "I Shorted Your House" Tee-Shirts doesn't help. A top down toxic processing black box of crap. Sold to pensions because fixed income rates only at 2%, Thanks To Bubblicious Fed. RICO. Systemic RICO. There may be less foot traffic at the Wall St. Tiffany's.
Considering that $2.3 Trillion went missing from the pentagon and the metals markets amount to what some say is a $5 Trillion fraud there is still a long way to go.
http://www.youtube.com/watch?v=hQZmbxhPl2A&feature=related
Lawrence Korb - Former Asst. Sec Def under Ronald Reagan
"Since the end of the cold war we've [U.S.] sold more military weapons than the rest of the world combined."
Dwight D. Eisenhower
"In the councils of government we must guard against the acquisition of unwarranted influence, whether sought or unsought,by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist."
http://www.youtube.com/watch?v=xU4GdHLUHwU
thank you for continuing to shed light on the bigger picture.
The fine will be $12 billion. Goldman will get a break at that level. First, this is the amount they should have lost in the AIG transactions. Had the government not bailed out AIG, Goldman had counterparty risk at $12 billion. F___cking period.
We should never have let them get paid at 100 cents on the dollar. That was one of the more disgusting elements of this entire f___cking disgusting chapter of American history. Heads should have rolled for that. So, they paid this out in bonuses ASAP to prevent clawback.
Well, now the Americans want their f___cking money back ! Do you f___cking comprende ? And GS, put a leash on your little piggies, they seem to be all over the place.
Then we can all go back to pretending this is some normal recovery.
(None of the above will ever happen. Why ? Because its a MADHOUSE.)
Has it ever occured to anyone that Paulson was acting on behalf of GS all along? I mean first he is in the winners circle with Goldman with the subprime trade of a life time. Next, his in the winners circle again betting against Greece!
Isn't it possible that Paulson was trading Goldman's money all along so that Goldman wouldn't have to disclose an obscence amount of profits betting against subprime. They have Paulson make the trades on their behalf. Much like Goldman unloading a bunch of AIG winnings to Deutch Bank and General Society months before the crisis, inorder to knock them down to number 3rd spot of AIG winnings, from the number one spot.
This has been brought up at www.WallStOnion.blogspot.com
and www.GolmanSachsExposed.blogspot.com months ago.
Food for thought.
NOpe they are asking for money not jail.
The money will come from Goldman's investors.
I'm good with a confiscation of personal property and clawback of all bonuses paid but ... I also would like to see jail.
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Fines... thats fucking it... Fines!
Fuck the Squid!
God's Work My Ass!!
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