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Thread: SEC accuses Goldman Sachs of civil fraud

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    SEC accuses Goldman Sachs of civil fraud

    SEC accuses Goldman Sachs of civil fraud - Yahoo! News

    AP 1:45 pm-The government has accused Goldman Sachs & Co. of defrauding investors by failing to disclose conflicts of interest in subprime investments it sold as the housing market was collapsing.

    The Securities and Exchange Commission said in a civil complaint Friday that Goldman failed to disclose that one of its clients helped create — and then bet against — subprime mortgage securities that Goldman sold to other investors.

    ...

    Goldman told investors that a third party, ACA Management LLC, had selected the pools of subprime mortgages it used to create what are known as synthetic collateralized debt obligations. But, the SEC alleges, Goldman misled investors by failing to disclose that Paulson & Co. also played a role in selecting the mortgage pools and stood to profit from their decline in value.

    "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," Khuzami said in a statement.
    Goldman of course denies any wrongdoing. So, this goes somewhat over my head, but I find the topic interesting. Does the government have a solid case here?
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    Re: SEC accuses Goldman Sachs of civil fraud

    Quote Originally Posted by Redress View Post
    SEC accuses Goldman Sachs of civil fraud - Yahoo! News



    Goldman of course denies any wrongdoing. So, this goes somewhat over my head, but I find the topic interesting. Does the government have a solid case here?
    In my opinion (not a legal one mind you)

    Yes the government has a case

    Goldman was promoting an investment to a group of clients, certainly telling the clients it was going to make them money.

    At the same time Goldman was betting those same investments were going to decrease in value. As Goldman set those securities up it had detailed knowledge of the value of the investments and how likely they were going to either make money or lose money.


    Overall Goldman was not being an indepdant and honest advisor in the promotion of that investment to its clients, as was its role.



    The basic idea here is

    I am a Real Estate Agent who sells you a home, I then take out fire insurance on that house (despite me not owning it). I made money selling the home, and should the house catch fire I will make more money. In such a case I have an incentive to ensure the house catches fire to maximize my potential income
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    Re: SEC accuses Goldman Sachs of civil fraud

    Quote Originally Posted by Lord Tammerlain View Post
    In my opinion (not a legal one mind you)

    Yes the government has a case

    Goldman was promoting an investment to a group of clients, certainly telling the clients it was going to make them money.

    At the same time Goldman was betting those same investments were going to decrease in value. As Goldman set those securities up it had detailed knowledge of the value of the investments and how likely they were going to either make money or lose money.


    Overall Goldman was not being an indepdant and honest advisor in the promotion of that investment to its clients, as was its role.



    The basic idea here is

    I am a Real Estate Agent who sells you a home, I then take out fire insurance on that house (despite me not owning it). I made money selling the home, and should the house catch fire I will make more money. In such a case I have an incentive to ensure the house catches fire to maximize my potential income
    Cramer on CNBC right now is saying GS was long not short.

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    Re: SEC accuses Goldman Sachs of civil fraud

    And so enter the Glass-Steagull Act, or rather the overturning thereof allowing the creator of a security (Investment Bank) to stake positions on it (Commercial Bank).

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    Re: SEC accuses Goldman Sachs of civil fraud

    Just finished The Big Short: Inside the Doomsday Machine as I saw the news on this and the government absolutely has a case - if the book is at all accurate.

    But the issue is that they had no idea what they were doing with mortgage backed securities. Totally concealed the risk of working with them. Created more risk and dumped it on other companies (AIG) and still got burned when it all fell apart.

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    Re: SEC accuses Goldman Sachs of civil fraud

    Quote Originally Posted by winston53660 View Post
    Cramer on CNBC right now is saying GS was long not short.
    They were long - that is how they got burned. They had no understanding of the risk around their own products.

    Thinking about it - is incompetence a good defense?

    People who were short on this stuff at the right time got rich.

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    Re: SEC accuses Goldman Sachs of civil fraud

    For those who are interested, the SEC's legal filing can be found at:

    http://sec.gov/litigation/complaints...-pr2010-59.pdf

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    Re: SEC accuses Goldman Sachs of civil fraud

    Quote Originally Posted by satandog View Post
    They were long - that is how they got burned. They had no understanding of the risk around their own products.

    Thinking about it - is incompetence a good defense?

    People who were short on this stuff at the right time got rich.
    The case hinges on GS going short though.

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    Re: SEC accuses Goldman Sachs of civil fraud

    Note that Lehman, which had numerous Obama supporters within its leadership (including Steven Rattner, who was originally going to be the "car czar") seems to be escaping their culpability, much like Fannie and Freddie.

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    Re: SEC accuses Goldman Sachs of civil fraud

    Quote Originally Posted by winston53660 View Post
    The case hinges on GS going short though.
    My mistake it was not GS that was short but Paulson

    GS&Co marketing materials for ABACUS 2007-AC1 – including the term sheet, flip book and offering memorandum for the CDO – all represented that the reference portfolio of
    RMBS underlying the CDO was selected by ACA Management LLC (“ACA”), a third-party
    with experience analyzing credit risk in RMBS. 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 ABACUS 2007-AC1 CDO, played a significant role in the portfolio selection process. After participating in the selection of the reference portfolio, Paulson effectively shorted the RMBS portfolio it helped select by entering into credit default swaps (“CDS”) with GS&Co to buy protection on specific layers of the ABACUS 2007-AC1 capital structure. Given its financial short interest, Paulson had an economic incentive to choose RMBS that it expected to experience credit events in the near future. GS&Co did not disclose Paulson’s adverse economic interests or its role in the portfolio selection process in the term sheet, flip book, offering memorandum or other marketing materials provided to investors.

    In sum, GS&Co arranged a transaction at Paulson’s request in which Paulson heavily influenced the selection of the portfolio to suit its economic interests, but failed to disclose to investors, as part of the description of the portfolio selection process contained in the marketing materials used to promote the transaction, Paulson’s role in the portfolio selection process or its adverse economic interests.

    Paulson helped create the RMBS, with GS knowledge, when Goldman sold the RMBS it knew that Paulson was short the RMBS and did not disclose this fact to the investors that bought the RMBS
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