The Securities and Exchange Commission (SEC) charged Goldman Sachs with defrauding investors with a collateralized debt obligation (CDO) based on subprime mortgages. Goldman failed to disclose that it structured these unregulated instruments in partnership with a hedge fund that was also shorting these securities — betting against them. The CDOs failed to the tune of $1 billion, and investors and bond insurer MBIA were stuck holding the bag. Goldman made $15 million on the deal; the hedge fund made $1 billion when the CDOs went bad.
The SEC is suing Goldman and Fabrice Tourre, the firm’s vice president in charge of this caper, but not the hedge fund, Paulson & Company. Paulson had a role in selecting the mortgage products behind the CDOs but also a vested interest in seeing them go bad. Unlike Goldman, the hedge fund did not market the instruments or make public representations about them.
Goldman’s response here.
See Goldman’s pitch for the offering, called Abacus.
Image (“Dogs Dealing Unregulated Securities, after C.M. Coolidge” ) by Mike Licht. Download a copy here. Creative Commons license; credit Mike Licht, NotionsCapital.com
For information on artist and banker Cassius Marcellus Coolidge (1844 — 1934), look here.
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Tags: CDOs, dogs playing poker, finance, fraud, Goldman Sachs, investing, investments, Paulson & Co., SEC, securities
NotionsCapital 
April 16, 2010 at 4:00 pm
I appreciate you posting the company’s response–even thought it says little and does not really help comfort investors much.
April 17, 2010 at 12:29 am
Update:
“Bank: Merrill Committed Same Fraud as SEC Claims Goldman Did,” Chad Bray, Wall Street Journal.
“The firm not charged in Goldman case made billions on collapse,” Marisa Taylor, McClatchy Newspapers.
“Goldman Sachs runs for governor of California,” Andrew Leonard, Salon.
“Goldman Sachs case opens lawsuit floodgates on Wall Street,” Christine Seib, The Times.
“Goldman Sachs faces questions in Europe, Gregory Katz and Geir Moulson, Associated Press via Salon.
April 18, 2010 at 1:49 am
It makes me sick that these people got away with scaming so many people. I hope they get convictions, and those convictions lead to changes that make sure this type of thing never happens again.
April 18, 2010 at 2:47 am
Jeff from Miami Limo wrote: I hope they get convictions, and those convictions lead to changes that make sure this type of thing never happens again.
There is legislation before Congress, but it is being stalled for purely partisan reasons.