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Thread: Goldman Sachs Charged with Fraud

  1. #1
    Sirius Roadkill is offline
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    Goldman Sachs Charged with Fraud

    FINALLY!

    The new Goldman Sachs global headquarters in Manhattan.

    By LOUISE STORY and GRETCHEN MORGENSON
    Published: April 16, 2010

    Goldman Sachs, which emerged relatively unscathed from the financial crisis, was accused of securities fraud in a civil suit filed Friday by the Securities and Exchange Commission, which claims the bank created and sold a mortgage investment that was secretly devised to fail.

    The move marks the first time that regulators have taken action against a Wall Street deal that helped investors capitalize on the collapse of the housing market. Goldman itself profited by betting against the very mortgage investments that it sold to its customers.

    The suit also named Fabrice Tourre, a vice president at Goldman who helped create and sell the investment.

    The instrument in the S.E.C. case, called Abacus 2007-AC1, was one of 25 deals that Goldman created so the bank and select clients could bet against the housing market. Those deals, which were the subject of an article in The New York Times in December, initially protected Goldman from losses when the mortgage market disintegrated and later yielded profits for the bank.

    As the Abacus deals plunged in value, Goldman and certain hedge funds made money on their negative bets, while the Goldman clients who bought the $10.9 billion in investments lost billions of dollars.

    According to the complaint, Goldman created Abacus 2007-AC1 in February 2007, at the request of John A. Paulson, a prominent hedge fund manager who earned an estimated $3.7 billion in 2007 by correctly wagering that the housing bubble would burst.

    Goldman let Mr. Paulson select mortgage bonds that he wanted to bet against — the ones he believed were most likely to lose value — and packaged those bonds into Abacus 2007-AC1, according to the S.E.C. complaint. Goldman then sold the Abacus deal to investors like foreign banks, pension funds, insurance companies and other hedge funds.

    But the deck was stacked against the Abacus investors, the complaint contends, because the investment was filled with bonds chosen by Mr. Paulson as likely to default. Goldman told investors in Abacus marketing materials reviewed by The Times that the bonds would be chosen by an independent manager.

    Mr. Paulson is not being named in the lawsuit.

    In recent months, Goldman has repeatedly defended its actions in the mortgage market, including its own bets against it. In a letter published last week in Goldman’s annual report, the bank rebutted criticism that it had created, and sold to its clients, mortgage-linked securities that it had little confidence in.

    “We certainly did not know the future of the residential housing market in the first half of 2007 anymore than we can predict the future of markets today,” Goldman wrote. “We also did not know whether the value of the instruments we sold would increase or decrease.”

    The letter continued: “Although Goldman Sachs held various positions in residential mortgage-related products in 2007, our short positions were not a ‘bet against our clients.’ ” Instead, the trades were used to hedge other trading positions, the bank said.

    In a statement provided in December to The Times as it prepared the article on the Abacus deals, Goldman said that it had sold the instruments to sophisticated investors and that these securities “were popular with many investors prior to the financial crisis because they gave investors the ability to work with banks to design tailored securities which met their particular criteria, whether it be ratings, leverage or other aspects of the transaction.”

    Goldman was one of many Wall Street firms that created complex mortgage securities — known as synthetic collateralized debt obligations — as the housing wave was cresting. At the time, traders like Mr. Paulson, as well as those within Goldman, were looking for ways to short the overheated market.

    Such investments consisted of insurance-like policies written on mortgage bonds. If the mortgage market held up and those bonds did well, investors who bought Abacus notes would have made money from the insurance premiums paid by investors like Mr. Paulson, who were negative on housing and had bought insurance on mortgage bonds. Instead, defaults spread and the bonds plunged, generating billion of dollars in losses for Abacus investors and billions in profits for Mr. Paulson.

    For months, S.E.C. officials have been examining mortgage bundles like Abacus that were created across Wall Street. The commission has been interviewing people who structured Goldman mortgage deals about Abacus and other, similar instruments. The S.E.C. advised Goldman that it was likely to face a civil suit in the matter, sending the bank what is known as a Wells notice.

    LINK:

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

  2. #2
    Sirius Roadkill is offline
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    April 16 2010

    General Electric
    Mr. Jeffrey Immelt

    Dear Mr. Immelt

    I have a terrible headache and will not be in for my lousy 2:00 o'clock show today; this unfair Goldman Sachs attack is very upsetting.

    Yours Truly

    Erin Burnett

  3. #3
    Sirius Roadkill is offline
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    Hi Jimmy

    What a banner year for Jimmy Cramer . . .

    First Karen grabs the kids and wisely gets the hell out of that madhouse . . . and now Jimmy's alma mater, GOLDMAN SACHS, charge with fraud by the SEC

    what next Jimmy, what next?

  4. #4
    Sirius Roadkill is offline
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    Just a head's-up

    Erin Burnett, Jimmy Cramer and all of the other Goldman Shills in the media will try and spin this as the actions of a rogue employee

    Don't for one minute believe that!

  5. #5
    Sirius Roadkill is offline
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    What a Great Day to be Near the TV

    this is almost as exciting as the day Al Cowlings tried to smuggle OJ across the Mexican Border in that white Ford Bronco while a chopper flew overhead documenting a slow-speed chase

    interrupted Knicks-Bulls

  6. #6
    Sirius Roadkill is offline
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    Ha

    Erin Burnett is already dancing the watusi ... "Isn't this what a hedge fund does?"

    what joke!

    get off the air lady

  7. #7
    Sirius Roadkill is offline
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    Pelligrini rats-out Goldman

  8. #8
    Atypical is offline
    Do you think, with all of the "friends' they have, that anything of substance will come of this?

  9. #9
    Sirius Roadkill is offline
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    Quote Originally Posted by Atypical View Post
    Do you think, with all of the "friends' they have, that anything of substance will come of this?
    Very good question . . . very good in deed.

    Only time will tell but I would not bet against Andrew Cuomo bringing more serious charges; that might be our best chance of actually seeing a perp walk and some kind of meaningful consequences.

    SEC charge is only the tip of the iceberg . . . one can only hope

  10. #10
    Atypical is offline
    I hope you're right but this company owns most of our government and a good portion of the world's other governments. Cuomo will get pressure you can bet.

    By the way, I always liked Johnny, and the Asbury Jukes, (if I got the name right). Are you familiar? Always wanted to ask.

    And now for something serious...

    Goldman brand to be biggest casualty of suit: analysts
    BANGALORE
    Fri Apr 16, 2010 4:11pm EDTStocks
    The Goldman Sachs Group, Inc.
    GS.N
    $160.70
    -23.57-12.79%
    2:01pm CDT

    BANGALORE (Reuters) - Goldman Sachs Inc (GS.N) may have to cough up a big fine to settle the civil lawsuit brought by U.S. regulators and the issue poses the biggest threat to the reputation of the influential bank, analysts said.

    Since it is a civil complaint, it may not be "life threatening" for the company and the worst could be a large monetary fine, Citigroup analyst Keith Horowitz said.

    Goldman Sachs was charged with fraud by the U.S. Securities and Exchange Commission (SEC) over its marketing of a debt product tied to subprime mortgages that was designed to fail.

    "Based on our understanding, this implies the government did not find sufficient evidence to justify a criminal action, although that cannot be ruled out in the future," Horowitz wrote in a research note.

    Analysts believe that the outcome of the proposed financial reforms is still unclear and the suit will only add to the uncertainty.

    Oppenheimer Equity Research downgraded the stock to "perform" from "outperform" saying the shares are likely to suffer in the near term although Goldman will continue to post strong earnings.

    "At the moment, it looks as if the SEC is pursuing an agenda aimed specifically at Goldman. That likely will keep a cloud over the stock for now," Oppenheimer analyst Chris Kotowski said.

    Goldman shares sank $24.13, or 13 percent, to $160.14 in afternoon trade on the New York Stock Exchange, after earlier falling to $155.55.
    Last edited by Atypical; 04-16-2010 at 05:14 PM.

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