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SEC Charges Goldman Sachs With Fraud On Subprime Mortgages

Supposedly “key facts related to subprime securities” were omitted and investors in the CDO lost $1 billion (whereas Paulson & Co, which apparently had a “hand in structuring the CDO in question,” made a billion). Dick Bové has no problem with this, and doesn’t think Goldman will either, which Mark Haines cannot believe.

More from the Times:

The suit also named Fabrice Tourre, a 31 year-old 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. 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.

Full complaint here.

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73 Responses to “SEC Charges Goldman Sachs With Fraud On Subprime Mortgages”

  1. Anonymous says:

    Wow! This is just the start. Osama is coming to get all of us. Need to brush up my pizza delivery skills.

  2. Zoomassfratdbag says:

    Nice, I think NY should throw RICO at these clowns for front running their clients in trading

  3. Anonymous says:

    So…if I think something I hold is about to go down, and I sell it, I’m committing fraud?

  4. Anonymous says:

    @3 according to the SEC and Mark haines, yes.

  5. d. braunstein says:

    jpm fo life

  6. Anonymous says:

    Mike Duvally anything to add?

    GS was at a big risk, eventually someone was going to slip up and the regulators pounced, inevitable when you are envied by many, and you only understand the language of money.

  7. Anonymous says:

    These guys were desperate for a perp and getting it from Goldman is a bonus.

  8. Anonymous says:

    Warren Buffet is crying right now…..

  9. Anonymous says:

    “God’s work…”

  10. Anonymous says:

    WOW! Thats a good PRICE!

  11. Anonymous says:

    Say it to my face! SAY IT TO MY FACE!!!

    ~Lou Dobbs

  12. Anonymous says:

    Doesn’t this merit at least one flashing/rotating light?

  13. Zoomassfratdbag says:

    @3

    No but if someone sells you a long only product saying the portfolio selections are made by independent manage to not so smart pensions and endowments, it is. If you knew there was a hf on the other side who cherry picked the mortgages, a reasonable person would have never made the trade.

  14. Anonymous says:

    Anal_yst – your thoughts?

  15. Anonymous says:

    @12 meh, it’s not that big a deal, GS will be fine.

  16. guest says:

    A.K. Barnett-Hart already addressed the quality of these Abacus CDOs. The S.E.C. is barking up the wrong tree.

  17. Anonymous says:

    Why did Tourre’s parents name him after a room spray deodorizer? Oh.. Nevermind.

  18. PermaGuest says:

    Agree with @1

  19. Anonymous says:

    Nice. About time they charge them with fraud.

  20. Anonymous says:

    FREE FABULOUS FAB

  21. Anonymous says:

    @13 Boom

  22. they're going after a 31 year old vp says:

    Nice. GS has coughed-up a 31 year old veep to take the fall. If it goes anywhere, that’ll be as far as it goes.

  23. Anonymous says:

    lol @ 10, finally a good use of that annoying commercial

  24. “Mr. Tourre at one point complained to an investor who was buying shares in Abacus that he was having trouble persuading Moody’s to give the deal the rating he desired..”

    Rating agencies, meddling with God’s work. For shame…..

  25. Anonymous says:

    I thought the Tourres only made good soccer players.

  26. Anonymous says:

    @14, yes, where is Anal_yst with his cogent and illuminating insights?

  27. Anonymous says:

    @13 – not so fast there . . .

    First of all as you know, in securities world, “smart” is defined by money. Accredited Institutional Investor, Qualified Institutional Buyer, etc. Per the SEC there is no such thing as a dumb rich person/HF or as a smart poor person. So the concept of not-so-smart pension funds / endowments isn’t relevant.

    Second, there are a lot of undefined terms here. How are they alleging that Paulson “picked” the securities? Did he say “if you bring me a cdo with X, Y & Z in it I’ll short it”? If so, is that “picking the securities” in it or “creating” it?

    Now the independent manager is a sticking point. I’d like to know what the complaint alleges GS told investors about security selection – exactly – and whether it would be in conflict with the above scenario. It might be, but it might not. It’s phrased in the article in a way suggesting the “independent manager” and the “Paulson Picked the securities” points are (a) given and (b) as evil as they sound, but I could see many ways in which those words could be misleading.

    Lastly, at that point in the market you could have told investors that the CDO was designed by Stephen Hawking, Bill Gates and Warren Buffet for the purpose of shorting the housing market. The investor would have laughed, said those guys were idiots, and bought the CDO anyway, because at that time the housing market couldn’t go down. Ever. I realize that’s not a legal defense, but that’s how it was – there were very few, if any, “reasonable” people in the market, on any side.

  28. Anonymous says:

    The f*cking SEC doesn’t have a clue. Mary Schapiro is a moron. I haven’t read the complaint but I know it is baseless. There is so much ignorance in this world.

    -Sent on behalf of Anal_yst

  29. Anonymous says:

    This is arbitrage! Not a crime…. so what if you sink your clients to make a little scratch!!

    L.B.

  30. Not only 31yr old, but presumably French?

    whisky tango foxtrot! I’m flying outta here before they get down on my funds.

  31. JK says:

    Note how the Times has him having a Master’s in “Operations” from Stanford, rather than Operations Research. Only some fool journalism major wouldn’t know what Operations Research is – it’s right there on his LinkedIn profile.

  32. NakedShort says:

    Should I not have done that?

  33. OptionTrader says:

    Yes, as a former Goldman trader I remember two things.

    1) Don’t get caught setting up shady shit.

    2) If you do get caught GS will feed you to the plebs for blood. Then they will assist in dragging your carcase along wall street to show they too are one of the plebs.

    All in all, this will be a minor correction in the GS business model. Not much will change from this and the long awaited blood the folks wanted will b given at very very little to GS expense.

    Because let’s be honest, GS only holds 30% of it’s ownership via public equity. So a 10% correction is merely a 3% correction.

  34. ummm says:

    Its a shame that GS is such easy prey for Obama. They actual deserve to get a black cock in the ass. But it seems a few golden apples and a pair of brass balls are ruining it for the rest of the city. I say again…

    Let GS take the fall and stop voting for these asshole DEMS!

    Stop the fund raising. We cant take anymore of this bullshit.

  35. Anonymous says:

    golden scrots very heavy on the way down

  36. Anonymous says:

    @10 – that was funny, especially if you picture Lloyd saying it.

  37. I understand a press release is now in the works:

    “We are very pleased to report that Fluffy the kitten has fully recovered, and has been placed in a loving, caring environment. LB, the kitten’s owner, has also announced that the firm will make a $5 million donation to the ASPCA, for the rescue of abused or abandoned kittens throughout the Tri-State region.”

  38. @37 – should also donate to the United N. College Fund – follow the leader at all times.

  39. Edward Driffield says:

    Can’t wait to hear what LvP has to say about all this.

  40. Anonymous says:

    @28 – Kudos, very well done!

  41. Anonymous says:

    @ 27

    The legal docs typically define independent director. Would be surprised if they altered the defn and the other side’s attorney’s missed it.

  42. Anonymous says:

    Bess!

    You need to put those a bunch of those little sirens around the title of the thread for breaking news.

  43. @42 – not at all. just pointing out where the leader donated a chunk of his $5.5 milly income.

  44. @42 again: my wife’s name is Itchiko, newbie, examine your ‘motifs’.

  45. @47:

    Weirder still – Obama scheduled to speak on financial industry reform this afternoon….

  46. OptionTrader says:

    @44 why would you point that out? He also donated a few million to Future Leaders of America. Also, I’m a newbie like you are a virgin at the boys gymnasium showering facilities.

  47. Anonymous says:

    Jesus people, what kind of third world country are you from that you’re surprised when the government goes after a company that donated to the winning party? That’s the way it’s supposed to work. You should be upset when it doesn’t work that way.

  48. Anonymous says:

    @49

    That would be the United States of America.

  49. @49:

    I agree.

    – Czar Rattner (ret.)

  50. @48 – boys gymnasium showering facilities? Wow, I thought I am a six sigma perv. But now, regardless, because of the visual, I need to go see my secretary.

  51. Anonymous says:

    Shocked, shocked I say!

  52. Anonymous says:

    Guess what 33, regulators’ decisions can make damage to value of the enterprise worse than a 10% 1-day move in the share price

  53. @52 – now I feel better. OptionTrader, please send me a private e-mail with your most intimate high school fantasies.

  54. George Costanza says:

    Was that wrong? Is it frowned upon here?

  55. mrpink says:

    Free the frenchie!

  56. @58 – mais oui, monsieur rose. vive la france et tout le choses francaises.

  57. @ 57 – OptionTrader – igniting a fire of passion that cannot be extinguished but with the help of my secretary is hardly a laughing matter. Explain yourself.

  58. Finnegan says:

    GS fights and ultimately wins since the gov has a hard time making financial convictions always stick OR GS ponies up some cash and settles. Either way they are fine. Either way they abandon bank holding co. status at some point, gov prohibitions aside.

    Maybe large institutional investors and other financial firms will actually read the label before they buy, or start hiring a few contrarians and listen to them.

  59. OptionTrader says:

    @60 Silence you. Cool link btw. I picked up a CLS for my birthday last year. It rides like a premium hooker!

  60. @63 – my Benz is getting old (2008 model) – just becoming as good as Ms. A. Dupre. The new CLS design prototype looks amazing, btw. Upgrade next year?

  61. Transmission Fraud! says:

    So it’s sorta like when I was in college and buying a used car. The the guy who sold me said car KNEW said transmission was going and, lo & behold, 2 weeks after I bought it, said tranny went and I had to spend mucho deniro on a new one. I sued him big time (pro se) and won! My first case, the Judge saw it my way. Watch out GS! Judge Judy is gonna getcha!

  62. Equivocation says:

    It’s not law; it’s politics. Politician can close down any industry if it is deemed politically expedient…. guess what? It’s expedient

    Could not have happened to nicer guys.

    GS: Screwing everybody, all the time

  63. Anonymous says:

    GS are not alone. This should impact all BrokerDealers.

  64. dan says:

    GS down 13 percent today. Many more screwed investors’ suits to follow. Bank regulations kept the economy relatively stable for Americans for cades. We see what happened when they were weakened.
    It’s fraud when you are lied to or information is withheld about your product. Sachs should be broken up or taken over for a time to find out hat the next scams are that can seriously damage the economy and dismantle them.

  65. jmb27 says:

    Predatory Lending is a major contributor to the economic turmoil we are currently experiencing.

    Here is an example of what I am talking about:
    Scott Veerkamp / Predatory Lending (Franklin Township School Board Member.)

    Please review this information from U.S. Senator Jeff Merkley regarding deceptive lending practices:
    “Steering payments were made to brokers who enticed unsuspecting homeowners into deceptive and expensive mortgages. These secret bonus payments, often called Yield Spread Premiums, turned home mortgages into a SCAM.”

    The Center for Responsible Lending says YSP “steals equity from struggling families.”
    1. Scott collected nearly $10,000 on two separate mortgages using YSP and junk fees. 2. This is an average of $5,000 per loan. 3. The median value of the properties was $135,000. 4. Clearly, this type of lending represents a major ripoff for consumers.

    http://merkley.senate.gov/newsroom/press/release/?id=A09C6A80-537A-4EB1-83C5-31925F046B6F

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