Goldman under fire
(20 April 2010 – USA) The US government’s Securities and Exchange Commission has filed significant legal actions related to the global financial crisis against Goldman Sachs, saying the investment bank sold mortgage investments without disclosing to buyers that they were created with input from a client who was betting on them to fail.
The accusations made by SEC against the bank surround a deal which saw Goldman Sachs receive US$15 million in 2007 from Paulson & Co, a hedge fund, for creating an investment tied to mortgage-related securities that the hedge fund viewed as likely to decline in value.
The hedge fund then separately took out an insurance policy that would return a huge profit when those securities’ values plunged.
The fraud charges focus on how the investment bank then sold the securities.
Goldman told investors that an independent objective third party, ACA Management LLC, had selected the pools of subprime mortgages it used to create the securities.
The Securities and Exchange Commission has said that Goldman failed to tell investors that Paulson & Co was also involved in the creation of the mortgage pools and stood to make a healthy profit on their demise.
SEC Enforcement director, Robert Khuzami, said in a statement that the investment bank 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.
When the securities failed it is reported that two European banks that bought the securities lost nearly US$1 billion, the SEC said.
As a result of the allegations Goldman Sachs shares plunges 13 percent at the end of last week and the stock market has been sent in a spin, especially since the SEC has also announced that other financial deals related to the market meltdown will continue to be investigated.
The hedge fund then separately took out an insurance policy that would return a huge profit when those securities’ values plunged.
The fraud charges focus on how the investment bank then sold the securities.
Goldman told investors that an independent objective third party, ACA Management LLC, had selected the pools of subprime mortgages it used to create the securities.
The Securities and Exchange Commission has said that Goldman failed to tell investors that Paulson & Co was also involved in the creation of the mortgage pools and stood to make a healthy profit on their demise.
SEC Enforcement director, Robert Khuzami, said in a statement that the investment bank 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.
When the securities failed it is reported that two European banks that bought the securities lost nearly US$1 billion, the SEC said.
As a result of the allegations Goldman Sachs shares plunges 13 percent at the end of last week and the stock market has been sent in a spin, especially since the SEC has also announced that other financial deals related to the market meltdown will continue to be investigated.
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