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.

73 comments (hidden to protect delicate sensibilities)
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Comments (73)

  1. Posted by Anonymous | April 16, 2010 at 10:57 AM

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

  2. Posted by Zoomassfratdbag | April 16, 2010 at 10:57 AM

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

  3. Posted by Anonymous | April 16, 2010 at 10:58 AM

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

  4. Posted by Anonymous | April 16, 2010 at 10:58 AM

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

  5. Posted by d. braunstein | April 16, 2010 at 10:58 AM

    jpm fo life

  6. Posted by Anonymous | April 16, 2010 at 11:00 AM

    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. Posted by Anonymous | April 16, 2010 at 11:00 AM

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

  8. Posted by Anonymous | April 16, 2010 at 11:01 AM

    Warren Buffet is crying right now…..

  9. Posted by Anonymous | April 16, 2010 at 11:02 AM

    “God’s work…”

  10. Posted by Anonymous | April 16, 2010 at 11:02 AM

    WOW! Thats a good PRICE!

  11. Posted by Anonymous | April 16, 2010 at 11:03 AM

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

    ~Lou Dobbs

  12. Posted by Anonymous | April 16, 2010 at 11:03 AM

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

  13. Posted by Zoomassfratdbag | April 16, 2010 at 11:03 AM

    @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. Posted by Anonymous | April 16, 2010 at 11:04 AM

    Anal_yst – your thoughts?

  15. Posted by Anonymous | April 16, 2010 at 11:05 AM

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

  16. Posted by guest | April 16, 2010 at 11:05 AM

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

  17. Posted by Anonymous | April 16, 2010 at 11:06 AM

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

  18. Posted by PermaGuest | April 16, 2010 at 11:07 AM

    Agree with @1

  19. Posted by Anonymous | April 16, 2010 at 11:07 AM

    Nice. About time they charge them with fraud.

  20. Posted by Anonymous | April 16, 2010 at 11:08 AM

    FREE FABULOUS FAB

  21. Posted by Anonymous | April 16, 2010 at 11:09 AM

    @13 Boom

  22. Posted by they're going after a 31 year old vp | April 16, 2010 at 11:10 AM

    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. Posted by Anonymous | April 16, 2010 at 11:13 AM

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

  24. Posted by Pfluger the Barbarian | April 16, 2010 at 11:14 AM

    “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. Posted by Anonymous | April 16, 2010 at 11:17 AM

    I thought the Tourres only made good soccer players.

  26. Posted by Anonymous | April 16, 2010 at 11:22 AM

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

  27. Posted by Anonymous | April 16, 2010 at 11:27 AM

    @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. Posted by Anonymous | April 16, 2010 at 11:29 AM

    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. Posted by Anonymous | April 16, 2010 at 11:38 AM

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

    L.B.

  30. Posted by volatilitysmile | April 16, 2010 at 11:40 AM

    Not only 31yr old, but presumably French?

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

  31. Posted by JK | April 16, 2010 at 11:42 AM

    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. Posted by NakedShort | April 16, 2010 at 11:44 AM

    Should I not have done that?

  33. Posted by OptionTrader | April 16, 2010 at 11:48 AM

    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. Posted by ummm | April 16, 2010 at 11:51 AM

    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. Posted by Anonymous | April 16, 2010 at 11:52 AM

    golden scrots very heavy on the way down

  36. Posted by Anonymous | April 16, 2010 at 11:52 AM

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

  37. Posted by Pfluger the Barbarian | April 16, 2010 at 12:00 PM

    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. Posted by volatilitysmile | April 16, 2010 at 12:02 PM

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

  39. Posted by Edward Driffield | April 16, 2010 at 12:04 PM

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

  40. Posted by Anonymous | April 16, 2010 at 12:05 PM

    @28 – Kudos, very well done!

  41. Posted by Anonymous | April 16, 2010 at 12:23 PM

    @ 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. Posted by OptionTrader | April 16, 2010 at 12:26 PM

    @38 racist.

  43. Posted by Anonymous | April 16, 2010 at 12:28 PM

    Bess!

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

  44. Posted by volatilitysmile | April 16, 2010 at 12:32 PM

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

  45. Posted by volatilitysmile | April 16, 2010 at 12:34 PM

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

  46. Posted by Anonymous | April 16, 2010 at 12:40 PM
  47. Posted by Pfluger the Barbarian | April 16, 2010 at 12:45 PM

    @47:

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

  48. Posted by OptionTrader | April 16, 2010 at 12:57 PM

    @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.

  49. Posted by Anonymous | April 16, 2010 at 1:01 PM

    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.

  50. Posted by Anonymous | April 16, 2010 at 1:20 PM

    @49

    That would be the United States of America.

  51. Posted by Pfluger the Barbarian | April 16, 2010 at 1:23 PM

    @49:

    I agree.

    – Czar Rattner (ret.)

  52. Posted by volatilitysmile | April 16, 2010 at 1:34 PM

    @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.

  53. Posted by Anonymous | April 16, 2010 at 1:35 PM

    Shocked, shocked I say!

  54. Posted by Anonymous | April 16, 2010 at 1:42 PM

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

  55. Posted by volatilitysmile | April 16, 2010 at 2:08 PM

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

  56. Posted by George Costanza | April 16, 2010 at 2:13 PM

    Was that wrong? Is it frowned upon here?

  57. Posted by OptionTrader | April 16, 2010 at 2:31 PM

    @55 LOL!!

  58. Posted by mrpink | April 16, 2010 at 3:06 PM

    Free the frenchie!

  59. Posted by volatilitysmile | April 16, 2010 at 3:48 PM

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

  60. Posted by volatilitysmile | April 16, 2010 at 3:49 PM

    @ 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.

  61. Posted by Finnegan | April 16, 2010 at 6:14 PM

    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.

  62. Posted by OptionTrader | April 16, 2010 at 7:11 PM

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

  63. Posted by volatilitysmile | April 16, 2010 at 8:58 PM

    @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?

  64. Posted by Transmission Fraud! | April 17, 2010 at 1:49 AM

    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!

  65. Posted by Equivocation | April 17, 2010 at 6:22 AM

    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

  66. Posted by Anonymous | April 17, 2010 at 5:30 PM

    GS are not alone. This should impact all BrokerDealers.

  67. Posted by dan | April 18, 2010 at 12:21 AM

    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.

  68. Posted by jmb27 | April 20, 2010 at 5:28 PM

    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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