SEC Sues Goldman Sachs, Alleging Fraud in CDO Tied to Subprime

[taught_me_patience]

Source: Bloomberg

By Gregory Mott

April 16 (Bloomberg) -- The U.S. Securities and Exchange Commission today sued Goldman Sachs Group Inc., accusing the company and one of its vice presidents of defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages.

The SEC announced the case in an e-mail release.


Read more: http://www.bloomberg.com/apps/news?pid=20601087&sid=aUKTT2a5L_zs&pos=1

[high density]

1. Whee, as the stock goes down 7%

Joy!

[laughingliberal]

38. If their stock rose on fraudulent practices, it needs to come down.

It's time for stock prices to be based in reality.

[aquart]

53. 25%.

[anigbrowl]

56. No. It's off (about) $25, 12-13%. don't mix up the price and percentage. nt

[TacticalPeek]

2. Poor things.

:grr:

[mbperrin]

3. Now some real punishment, please!

Take ALL their ill-gotten gains - it's all they understand!

[cascadiance]

4. Go Down suckers! Matt Taibi, you rock! They're now having to pay the piper!

[Tandalayo_Scheisskopf]

72. You likely could not...

Wipe the smile off Matthew's face with ZipStrip and a rasping file right now. ;-)

[ensho]

5. good

nt

[Democat]

6. They will have to double their donations to Republicans this fall!

To try to get these charges dropped. Pay the Republicans enough and they will block it, just watch.

[BeyondGeography]

7. U.S. Accuses Goldman Sachs of Fraud

Source: The New York Times

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...

Read more: http://www.nytimes.com/2010/04/17/business/17goldman.html?hp

[RamboLiberal]

8. U.S. Accuses Goldman Sachs of Fraud

Source: NY Times

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.



Read more: http://www.nytimes.com/2010/04/17/business/17goldman.html?hp

---

[FSogol]

9. The first of many....I hope. n/t

[UpInArms]

10. Goldman is a criminal organization

and I hope these thieves end their days in prison on 10-thread count sheets.

[Prometheus Bound]

75. But their CEO says their doing God's work.

[wordpix]

85. what about Hank Paulson? CDO's were an "active part of GS' business" during his CEO tenure

http://en.wikipedia.org/wiki/Henry_Paulson

snip Creating the collateralized debt obligations (CDO's) forming the basis of the current crisis was an active part of Goldman Sach's business during Paulson's tenure as CEO.
Opponents argued that Paulson remained a Wall Street insider who maintained close friendships with higher-ups of the bailout beneficiaries. If passed into law, the proposed bill would have given the United States Treasury Secretary unprecedented powers over the economic and financial life of the U.S. Section 8 of Paulson’s original plan stated: "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."<33> snip

[UpInArms]

95. nice post, wordpix!

of course, hanky panky had his hands in the cookie jar - all the way up to his armpit

[ixion]

11. civil suit.... meh... bring on criminal charges

[dipsydoodle]

12. A silver lining in the cloud

aka retribution.

[lxlxlxl]

13. wow...the market is vomiting right now...which is probably good

[SOS]

14. Thanks to Michael Lewis and Vanity Fair!

Lewis outlined the fraud in his recent VF piece.
Goldman created fraudulent CDOs designed to collapse, sold them and then took out default swaps on their own garbage.

Once the fraud was clearly explained in a national magazine, it became difficult for even the SEC to continue to ignore it.

[Proletariatprincess]

15. Let's hope that Shittybank and Skank of America are next!

[NoSheep]

16. Imagine seeing headlines like this everyday!

[Name removed]

17. Deleted sub-thread

Sub-thread removed by moderator. Click here to review the message board rules.

[Romulox]

18. There's no criminal analogue to civil Securites Fraud charges?

That seems unlikely...

[alcibiades_mystery]

29. There is certainly a criminal analogue

And it's likely that Tourre and probably parties at Paulson and perhaps even the lawyers involved in the deal will be charged in short order.

[Romulox]

30. Since the standard of proof is much higher in a criminal court, it seems to me that

it makes more sense to try someone criminally first, and civilly only afterwords. After all, the elements of criminal fraud are largely the same--only the burden of proof is substantially different. Which means that once it is established in a criminal court that the defendants have committed criminal fraud beyond a reasonable doubt, these findings can be used in civil procedures. However, the reverse is not true, due to the lower standard of proof required in civil proceedings.

To my mind, prosecuting civilly means that Holder doesn't ever intend to ever prosecute criminally. I hope I am off base somehow...

[BumRushDaShow]

19. Just the tip of the iceberg! n/t

[CharmCity]

20. This is huge!

This scheme encouraged banks to push crappy mortgages like crack, package them as an investment product, lie about them, THEN bet on the the product's failure. A handful of investors became billionaires from this scheme, while millions of us are holding crappy mortgages and "toxic assets," i.e., our homes.

And the symbol of going after Goldman Sachs is also huge -- this is the home of Hank Paulson and... Tim Geithner. There were other products that were similar...

There are a dozen or so billionaires speed dialing their lawyers right now.

[pattmarty]

21. I believe (as do many others) that you have to have a deterent.............

...........to this criminality otherwise this shit will continue to go on. It's actually pretty simple; institute TOUGH laws that have jail time AND stiff fines for anyone that does this type of shit and watch as magically it disappears.

[salguine]

22. And absolutely nothing whatsoever will be done about it. Goldman Sachs owns the government.

[anigbrowl]

46. The SEC is part of the government...

By your logic, this move by the SEC shouldn't even be taking place.

[salguine]

77. Have you ever heard of a "show trial"? Or a "façade"? Or a "joke"? Or anything

done out of a desire to give the appearance of something being done while nothing is actually done?

[anigbrowl]

82. Yes...and this ain't the case here.

I'd try to explain why, but it's clear you just to want to wave a pitchfork. Enjoy.

[salguine]

92. Yeah, I "just want to wave a pitchfork". Why don't you go ahead and explain? I'm listening.

[anigbrowl]

94. Well have a look at #83

[colsohlibgal]

23. Surprising

This is kind of shocking considering Rubin and all his GS alumni buddies being in Obama's inner circle. Hopefully any punishment is actual and serious jail time and not a big fine which is nothing to GS executives. I'm hopeful and skeptical at the same time.

[Vinnie From Indy]

24. Don't get to giddy just yet.

While any justice meted out to Goldman is a good thing, please do not think these very smart, powerful, connected, experienced criminals did not think long and hard about how to deal with the aftermath of the huge theft they committed. One of the oldest plays in the playbook of organized crime is to serve up a patsy or sacrificial lamb. It happens day in and day out in that world. Throwing one of their own to the wolves to protect the rest would hardly merit 10 seconds of deliberation for these assholes. If it is true that the titans of Wall Street have their tentacles deep into the highest levels of power, this might all be simply a way to serve some red meat to the millions clamoring for justice. Let's wait and see if there will be more than a single case brought before declaring justice was done for the economic rape of America by these people.

[icee]

25. Right. Good point. GS may have that SEC Chief under contract

for all we know.

[Roland99]

26. K&R with a vengeance!!

[JBoy]

27. Stand by for stories of how Goldman shorted the market to profit from today's decline.

[tranche]

49. +1 I'm waiting for this too.

[BootinUp]

50. good call. nt

[Roland99]

28. Goldman Sachs' new $2 billion corporate palace >>>>>>

http://www.marketwatch.com/video/asset/news-hub-a-new-palace-for-goldman-sachs-2010-04-16/26681592-7411-42A7-A619-4BA21D1B3D78

[wordpix]

86. aw those poor GS higher ups have to commute from Greenwich! How terrible!

:sarcasm: glad they're doing something for their millions per year.

[depakid]

31. High time- I suspect that the shenanigans in Greece were the final straw

[Dinger]

32. Isn't geithner Associated With them In Some Way?

Or am I wrong?

[taught_me_patience]

34. Turbo Timmeh

funneled approx $12Billion to GS through the "bailout" of AIG. His predecessor Hank Paulson is the former CEO of Goldman Sachs.

Timmeh is probably on the phone to the SEC telling them to "back off".

[Dinger]

35. Seems To Me This Should Get Some Attention By The Media?

Yeah, right.

[AngryOldDem]

48. Read Sorkin's "Too Big To Fail"

GS was treated with kid gloves while Lehman, JP Morgan, Morgan Stanley, etc., were left twisting in the wind.

[napi21]

39. Tim was the overseer of GS but he worked for the NY Fed.

At the very least, he should have known these shenanigans were going on, but if he didn't, I think we'll soon know because if he really was betrayed by GS he's not going to be able to hide his anger at them for literally using his trust in them.

[Romulox]

33. How can anybody be prosecuted while Larry Summers remains in the cabinet?

He is as implicated in this as anyone...

[Dinger]

36. geithner too (nt)

[MGKrebs]

37. That is so sickeningly cynical.

It's not enough that they were betting against the investments they were selling, but they were trying to HIDE the quality of the investment so that they could pull it off. In the meantime, pension systems all over the world lose their money from this scam.

[Po_d Mainiac]

40. Goldman Sachs Sued by SEC for Fraud Tied to CDOs

Source: By Joshua Gallu and Christine Harper April 16 (Bloomberg)

Goldman Sachs Group Inc. was sued by U.S. regulators for fraud tied to collateralized debt obligations that contributed to the worst financial crisis since the Great Depression. The firm’s shares tumbled as much as 16 percent and financial stocks slumped.

Goldman Sachs misstated and omitted key facts about a financial product tied to subprime mortgages as the U.S. housing market was starting to falter, the Securities and Exchange Commission said in a statement today. The SEC also sued Fabrice Tourre, a Goldman Sachs vice president.



Read more: http://www.bloomberg.com/apps/news?pid=20601087&sid=agT1H2ffyJCA

---

The regulators have finally grown a pair!!

[anigbrowl]

41. Heh - been expecting this. It'll piss some DUer's off though

It's good news, though not for those who complain about the Obama administration being a tool of wall street.

I don't see it as a case of the regulators having finally 'grown a pair' - rather, it's a reflection of how complex financial crime cases are. Putting together the evidence required to bring charges and successfully prosecute the case is a huge undertaking, and I do want the charges to stand up in court.

This is far better than if the Obama administration had gone on a fishing expedition early on but been unable to make the charges stick. 'The wheels of justice grind slow, but they grind exceeding fine'.

[notesdev]

43. We'll see

This is a civil, not a criminal charge, so nobody is going to jail for it (strike 1).

This kind of scam is being perpetrated on a daily basis by Wall Street banks too, and the admin does nothing to stop it (strike 2).

When other large and influential corps have had charges against them, they have been allowed to evade them with a slap on the wrist fine, which to these companies is nothing more than the cost of doing business (see Pfizer, twice allowed to evade the 'corporate death penalty' through setting up sham corporations for the sole purpose of pleading guilty in Pfizer's stead).

I'll believe they're serious when I start seeing bankers in jail, not by the handful, not by the dozens, by by the legion.

[sabrina 1]

52. Eliott Spitzer never had any problem going after Wall St.

criminals and he didn't just sue them. He arrested, charged and convicted them for fraud and corruption.

All these excuses about why we have to tip-toe around crime in this country is just sickening. The reason Goldman Sachs is still around is because they have bought influence in DC.

There have been no prosecutions for the collapse of the economy, the outright fraud that nearly brought down this country completely. The same players are still profiting while thinking of new ways to rip people off.

I can only feel grateful that Bush failed to let them get their hands on the SS fund, or that would be gone also.

There's no need for the the president to do anything, that's why we have a Justice Dept. Just hire Eliott Spitzer and we'll see some action.

[AnneD]

54. And many of us on SWT think that....

Elliott Spitzer was outed by WS too. It was bankers provided the tip about his private account. Frankly-I don't care what a public employee does with his dick on his own time AND HIS OWN MONEY. Spitzer was very effective at bringing some of these WS criminal to justice and I hate that he was driven out. They have been running wild every since and stealing every dollar that is not nailed down.

[unabelladonna]

81. spitzer had a bullseye painted on him

by wall street. he pissed off many people.

[sabrina 1]

93. Yes, I know ~ he was

foolish not to realize he had made many enemies, but when you compare going to a prostitute, and paying for it with your own money, to some of the crimes these people have committed, some of it bordering on treason as they sold this country down the river, I don't think anyone is going to worry too much about what someone does in their personal lives so long as they are not using public funds to do it.

I do think the banks blew the whistle on him though. Not sure if they were actually watching him, or were told to, but it does seem like they were out to get rid of him. For that reason alone, I'd love to see him back doing what he was doing so well.

[anigbrowl]

55. Really? Can you identify some successful convictions?

Don't get me wrong, I'm a fan of Spitzer. But if you look through case records, you may be surprised at how few successful convictions (ie not overturned at appeal) there are for securities fraud. It is not as simple as going in all gangbusters and being sure you'll find evidence.

I don't know if you've ever looked through the history of a case like this but it's common for investigators to spend months and months going through hundreds of thousands, or even millions of pages before the trial can begin, which is why such trials frequently go on for many years. We're talking enough to fill a small community library, and every one of those documents has to be cross-references, numbered, and itemized or the case can fail on procedural grounds. The legal bill for administrating the Lehman's bankruptcy is expected to exceed $100 million.

We'd all like to see action, but the reality of building and winning a case like this is just not a speedy process. Take a look at the actual complaint (which is not the evidence): http://www.sec.gov/litigation/complaints/2010/comp-pr2010-59.pdf This is a relatively simple case, but you'll see that it involves about 75 individual legal assertions, every single one of which can and will be contested. It might be another year before the trial can actually begin, while the defendants' attorneys challenge the elements of the complaint.

[sabrina 1]

79. Well, he went after WorldCom execs

including Bernard Ebbers and four others successfully. And he collected billions in fines from from other big corps. True, it's not easy to get convictions in cases like this, they have lots of money after all, to fight for years and to appeal.

But what he accomplished was to let the Wall St. swindlers know that finally there was someone who was willing to go after them. Which is why he was known as the 'Sheriff of Wall St.' He put fear into them, where before there was arrogance and Wall St. breated a sigh of relief when he was no longer in office.

He warned early on, eg, about the sub-prime mortgage crisis and slammed the SEC for being 'asleep at the wheel'.

The point is, no one on Wall St. was feeling safe while he was AG. And it has been speculated that he was targeted by Wall St. to get him out of the Governor's mansion, with quite a bit of evidence that the banks were watching him. Foolish of him, for such a smart man, not to have expected that he would be under scrutiny. But he was more effective than any othere NYS AG in going after fraud on Wall St.

[anigbrowl]

83. No disagreement about any of that

I'm just trying to point out that this is going to be big and slow and may take time to properly gather momentum. It is the first big case brought by the SEC (under this administration), and the very first case brought by a new unit of it designed specifically to investigate structural vehicles. As such it's going to be a test case.

It is probably not a coincidence that this case also involves the specific deal that played a large part in causing the royal bank of Scotland to go bust - the British government now owns 80% of it, and you could say that this fraud has cost every single person in Britain $15. Meantime, the Goldman VP who set up the deal is now an executive director at the firm's London HQ. And it just happens that the UK is about to have an election and every party is trying their very best to look more reformist than their competitors.

[sabrina 1]

91. I agree it is good news and hopefully just a start. It certainly

should cause some of them to start worrying 'who's next'. I did read that there are several banks on the list, like Deutsch Bank eg.

I don't mind if it takes time, so long as it's happening and that they are scared enough to start behaving. I didn't know about the Scottish Bank, will check out the info.

I also think it is a no-lose issue for this administration as across the political spectrum no one is more unpopular than the greedy Wall St. bankers.

I hope Britain starts investigating also. The mess they made was global and has destroyed many lives.

Anyhow, my only point was that it's not impossible to go after them criminally as well as civilly, as Spitzer did. You are right however, about the number of criminal convictions. He was more successful with his civil suits.

[wordpix]

88. oh well, meanwhile GS' stock price & everyone connected to this scam are in jeopardy

at least some reputations will be deservedly tarnished :popcorn:

[wordpix]

87. bring him back! Spitzer NOW!

[robertpaulsen]

42. To the greatest page! K&R!

:kick:

[Roland99]

44. dupe

[yurbud]

45. I'm still waiting for some orange jumpsuit photos of Goldman execs

[AngryOldDem]

47. Of course, John Boehner tries to turn this back around on Obama...

...by saying that GS will benefit the most from new financial rules that would make GS too big to fail.

Note to Boner: GS has ALWAYS been too big to fail, which is exactly the problem.

Anything to pick a fight.

[dmosh42]

51. About fucking time somebody gets some heat!.....

Of course this is being charged by the SEC, which were the same dumb bastards that thought Madoff was doing fine! I wouldn't count on any results, unless someone is spoon feeding them.

[Joanne98]

57. Goldman Sachs charged with fraud, stage set for fiery reform debate

Source: The Hill

The Securities and Exchange Commission on Friday formally accused Goldman Sachs, one of the nation’s preeminent investment banks, of fraud, sending the bank’s shares plunging.

The charges against the prominent Wall Street bank set the stage for debate over financial regulatory reform that is expected to begin in the Senate next week.



Democrats have argued that consumers need a government overseer to prevent big banks such as Goldman Sachs from taking advantage of investors and posing substantial risks to the entire financial system.

In a 22-page complaint filed with the U.S. District Court for the Southern District of New York, the SEC alleged that Goldman Sachs defrauded clients by creating and selling a mortgage investment fund that was designed to fail.



Read more: http://thehill.com/blogs/on-the-money/corporate-governance/92707-sec-charges-goldman-sachs-setting-stage-for-reform-debate

[BootinUp]

58. Lets rake 'em over the coals. nt

[Joanne98]

59. YEAH!

:headbang:

[florida08]

60. yes!!

Shake that corporate tree :popcorn: :popcorn: :popcorn:

[pattmarty]

61. They're gonna win in the end, you know. But let's hope that it takes..

................years and brings out all the "dirty laundry". This is the best us peons can hope for, but at least the general public will be "somewhat" educated to the evil of unfettered/unregulated capitalism and MAYBE that will lead to more calls for increased regulation legislation.

[dotymed]

64. They'll probably

plead no contest, pay an undisclosed fine and pass that expense on to their customers. We can not hold corporate "persons" legally responsible. Money talks.....peasants fill the penitentiaries. If a regular guy had bilked corporations out of billions of $$ and donated to the poor...he would be sentenced to life.

[pattmarty]

67. No, I think for "that crime" he surely would have been put to death.

[Mopar151]

62. Finally, the compost has hit the wind turbine.... n/t

[ozone_man]

69. Don't malign compost that way.

GS and the rest of those too big to fail banksters are the lowest form of parasites, and the FED and Treasury are enablers.

[Mopar151]

74. Should I have said

"Precursor compost"? Once they are shredded, piled, and turned occasionally, they will become useful again.

[Turbineguy]

63. The SEC is

no longer run by the Bush Wrecking Crew.

[Romulox]

65. Why no criminal prosecution??? Fraud isn't a mere civil infraction. nt

[anigbrowl]

70. It depends on the kind of fraud

The law provides for both civil and criminal penalties, depending on the specific violations. My understanding is that the SEC cannot by itself bring criminal charges - that is reserved to the DoJ.

[Romulox]

73. The kind of fraud that involves misrepresentations and millions of dollars is a criminal matter. nt

[anigbrowl]

76. As I said, the SEC has no jurisdiction to bring criminal charges.

You can certainly send a note to Eric Holder or the attorney-general of NY to encourage them to bring a parallel action.

[wordpix]

89. I'm sure DOJ will be kept informed - hopefully they won't let GS pull a "Massey"

Coal Co. appeals going on forever, that is.

[GreenTea]

66. Really, What's new & where's the problem? This is what business in this country is all about and

always has been and always will be!

Finding new ways to screw, lie and cheat the most trusting & vulnerable as well as everyone else!

And then they are praised, hail & rewarded as financial geniuses by the business community (other crooks) and the corporate media.

The "businessmen" (crooks) that are the most diabolical, the most dastardly clever and the most cold-heartedly greedy & selfish take in the most behemoth amounts of money.

It's the American way, always has been.

And who is really surprised and who thinks things will ever change when the same greedy banks & crooks control it all?

There's certainly no risk involved , no one ever goes to jail...and if one unlucky chap happens to get some time, it's not for long. Wall Street, banking & the financial systems in this country make it well worth it to rip-off & defraud for huge bucks!

[Beetwasher]

68. Repubs PLEASE PLEASE PLEASE OBSTRUCT!!!!

I'm begging you. Obstruct. Fillibuster. Throw tantrums on the Senate floor. Pretty please? :rofl:

[Odin2005]

71. Good!

[unabelladonna]

78. this is why i voted for obama

does anyone think this could have happened in a republican administration?

[Dinger]

80. geithner on MTP This Sunday

he should be asked about this shit. Yeah, right, like gregory will do that.

[wordpix]

90. that oughta be a good one

[wordpix]

84. now this is change I believe in! GOBAMA