breaking - g sachs charged with fraud re subrime crisis!

About fecking time !!!!!

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.

Tourre was principally responsible for ABACUS 2007-AC1. Tourre devised the transaction, prepared the marketing materials and communicated directly with investors. Tourre knew of Paulson's undisclosed short interest and its role in the collateral selection process. Tourre also misled ACA into believing that Paulson invested approximately $200 million in the equity of ABACUS 2007-AC1 (a long position) and, accordingly, that Paulson's interests in the collateral section process were aligned with ACA's when in reality Paulson's interests were sharply conflicting.

If this doesn't open the door wide open to every hedge fund and pension fund who got creamed buying this toxic crap to file civil charges again GS, I don't know what does?

The fun is just beginning IMO.

again = against

The fun is just beginning IMO


Indeed. Although in many ways perhaps it is better described as fireworks rather than fun given potential fallout of the deceptions unravelling

gold is dropping because its sachs are having to sell it to pay off the paper. not long til that turns round imo and the price of gold goes through the roof.

"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," SEC Enforcement Director Robert Khuzami said in a statement.


seriously? they are going after them for this?

a pretty large proportion of the credit structurers on Wall Street will be looking over their shoulders now

The SEC has used the word "fraud" in it's charges in only two previous cases: Enron & WorldCom

i also the think the charges are about non-disclosure of exposure to sub prime

i reckon jp morgan will end up taking over sachs.

goldman built a synthetic cdo on rubbish aaa rated mortgages..

they intentionally chose the worst aaa rated mortgages they could find and then represented them as solid investments to their clients...

Paulsons hedge fund then told everyone they we going long on this cdo bundle but really went short..

99% of the assets of the cdo were then down graded from their aaa rating and the investors lost 1 billion dollars

subversion, it's not "just this". They allowed Paulson to hand pick the tranches of the CDS (this in itself is not fraud, not even illegal) but they did not disclose that to the buyers, in fact they claimed that the work was done by an independent (this is illegal). Where the "fraud" comes in is that they were advising buyers that Paulson is long the CDS's when in fact they knew Paulson was shorting them (and this is fraud).

The waters will get a lot deeper if Cuomo's office decides to pursue criminal charges. I also imagine anyone who got s.crewed buying this crap is already talking to their lawyers today.

[i]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

sorry. heres the link to news story

http://www.nytimes.com/2010/04/17/business/17goldman.html?src=tptw

btw, not directly related to the legal case but related to the products in question

have a look at this absolute gem of a research paper i've just come across

http://www.hks.harvard.edu/m-rcbg/students/dunlop/2009-CDOmeltdown.pdf

I will have a read, thanks for posting.

the simple fact is that CDOs and their brethren are one of the most abused asset classes in the history of wall street

in HK, 'minibonds' (glorified CDOs packaged by Lehman and resold by retail banks/brokers) led many ordinary people to see their life savings wiped out, and arrests and prosecutions are still being made

since these baskets and their constituents can get ridiculously complex, its pretty tricky to figure out which issuers and net long/short each individual part, let alone build a watertight legal case out of it

which is why i'm very surprised to read the details of the reasons for bringing this case... this sort of thing was not rare

sub - good article. not read it all as yet, still going as working on something else at the same time

but as expected and i said all along - theyre all in on it together. it's funny that that the sec is pressing charges as really it "failed" to do its job in regulating ratings agencies properly.

meaning this whole thing is even more of a farce beacuse all parties involved misled investors. will anyone prosecute sec?

don did you get my email m8

good little analogy from the comments section on zerohedge

"Imagine you and your friend sell baskets of apples.

Your friend purposely puts poison in some of the apples, while you (knowing of the poison) continue to sell those apples. Additionally, you tell your customers that these particular apples are the most delicious that you've ever had for sale.

Then that same devious friend of yours buys life insurance contracts on those customers who ate the apples. Your customers die as expected, and your friend makes billions of dollars in profits off of those insurance contracts.

Then everyone in the apple industry marvels at how smart the both of you are. And you spend the next two years pretending that you're the Master of the Universe. "

me thinks this has far and deep to run

Great analogy, subversion, and the link you posted was a great read.

What's zerohedgefund?

http://www.zerohedge.com/

this is the bit that is critical for me - this was a synthetic CDO, not a 'vanilla' one

hence, by definition, since the underlyings are Credit Default Swaps or equivalent, EVERY single deal of this type of EVERY bank issued will have a similar structure

ie these synthetic CDOs will ALL ultimately have issuers of these CDS who are paying the premiums (to be distributed to investors) in return for 'protection' against the Reference Obligations going into default... ie profiting from the collapse of the underlying securities

and lets just say that the relationship between these CDS issuers and the CDO desks at many banks was often 'friendly'

so if the SEC and/or their counterparts in other countries take issue with this type of synthetic CDO issuance and start aggresively 'looking behind the curtain' of other deals done in this style, things could get very interesting

of course, the other possibility is that Goldman blows the SECs legal case out of the water... i think a lot of Credit Structurers who worked on deals like this must be hoping this is the case

i should just add for clarity - these issuers of CDS did not all have to have 'nefarious' reasons for doing so, many would have been genuine hedges, or bets placed in good faith

so its a question of where the regulators decide to draw the line... but the fact that they seem to, out of the blue, have grown some teeth and started to bark, must have come as a shock to many who thought they were acting legally (although possibly unethically)

Surely RBS would have its hands tied if they decided to challenge this though, given some of their previous?

John Paulson, the investor who helped design the CDO at the heart of the affair,should face serious legal consequences.

I won't hold my breath, They only made 2 billion out of it, FFS

boxingthefox 18 Apr 20:06
John Paulson, the investor who helped design the CDO at the heart of the affair,should face serious legal consequences.

why? people make financial bets all the time

the issue here is alleged fraudulent misrepresentations to Goldmans clients, and this aspect was Goldmans responsibility

subversion 18 Apr 23:20

why? people make financial bets all the time

the issue here is alleged fraudulent misrepresentations to Goldmans clients, and this aspect was Goldmans responsibility

IF ONLY!!!


He was involved, in what will turn out to be a financial scam, thankfully people with clout are already on the case. Wise up and get into the real world. HTH.

"A little learning is a dangerous thing; drink deep, or taste not the Pierian spring: there shallow draughts intoxicate the brain, and drinking largely sobers us again."

the SEC have not named Paulson as a defendant in this case

the case revolves around alleged fraud

and Paulson did not have clients to defraud

HTH

http://blogs.wsj.com/deals/2010/04/16/sec-khuzami-explains-why-paulson-wasnt...

The posse are not far behind !!, the coming weeks should be interesting.

rather than making stupid comments about 'getting into the real world', pasting quaint quotations and expressing moral outrage, perhaps you could explain to us all exactly how this 'posse' you speak of could construct a legal case against Paulson?

especially since the SEC have acknowledged they have no evidence against him in this case?

i'm all ears. law, evidence and facts please. and less of the hyperbole.

if you have a serious argument, i would like to hear it.

subversion, I apologise for making it look like a personal attack (real world) unwarranted and unnecessary.

I don't think a betting site forum is the ideal medium to have a serious debate on this matter, so I must decline your offer. I have far better things to do than get into a long exchange with someone using a made up name on an anonymous forum. I know nothing about you, nor you me.

I'm happy to leave it there, and let the tangled web unwind daily. Good luck, cheers.

Remember it is' God's work '@Goldman Sachs!

No case to answer.

Some patsy will get nailed before the next election but the window at the Fed will remain open.

Shame Bernanke doesn't go out of it.