Posted on 04/16/2010 8:49:07 AM PDT by Sleeping Freeper
SAN FRANCISCO (MarketWatch) -- The Securities and Exchange Commission on Friday charged Goldman Sachs & Co. and one of its vice presidents for defrauding investors by misstating and omitting key facts about a financial product related to subprime mortgages.
The SEC alleged in a lawsuit that Goldman structured and marketed a collateralized debt obligation that hinged on the performance of subprime residential mortgage-backed securities. However, it failed to disclose the role that a major hedge fund, Paulson & Co., played in the portfolio selection process as well as the fact that the hedge fund had taken a short position against the CDO.
"Goldman 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," said Robert Khuzami, director of the division of enforcement, in a statement.
(Excerpt) Read more at marketwatch.com ...
RE:
Don’t get distracted. Who runs the SEC?
Answer: Obama
Are you insinuating that the current head of the SEC, Mary Schapiro ( who used to head the surveillance and compliance arm of NASDAQ ) is Obama’s lapdog ?
From National Review:
Goldman Sacked [Stephen Spruiell]
There seems to be some confusion over what the Goldman Sachs-SEC lawsuit is about. This isn’t just about the fact that Goldman sold its clients some bonds and then later bet against them. In my view, that wouldn’t be so bad. Goldman would be playing two independent roles in that story — broker on one side, trader on the other — and following independent strategies to hedge against market risk. Micromanaging investment banks’ hedging strategies could have all sorts of undesirable unintended consequences.
But the fraud alleged here is more serious than that, and it concerns the way Goldman structured and sold a particular bond, a structured product known as a Collateralized Debt Obligation (CDO). These products are not like ordinary stocks and bonds, which are pretty straightforward investments. They’re made up of the cash flows of a variety of underlying assets — in this case, pools of mortgages. There was a heavy demand for these products during the housing boom, and investment banks such as Goldman were under pressure to keep churning them out. The charge against Goldman is that at least one of these products, a CDO called Abacus 2007-AC1, was built to fail.
The outside consultant Goldman hired to select which mortgages would go into the CDO, a hedge-fund manager named John Paulson, is now known as one of the most famous housing shorts ever — he made an estimated $3.7 billion betting that these kinds of mortgage-backed bonds would go bad. So it is pretty disturbing that Goldman would bring him in as an “independent manager” to help it construct a CDO and not disclose this fact to the CDO’s buyers.
It would be like holding a basketball game, letting a Vegas sharp secretly select the players on one of the teams, and then presenting it to the public as a fair game. The sharp would have an incentive to select the worst players for his team and then bet against it. According to the SEC, that is exactly what Paulson and Goldman did:
According to the SEC’s complaint, filed in U.S. District Court for the Southern District of New York, the marketing materials for the CDO known as ABACUS 2007-AC1 (ABACUS) all represented that the RMBS portfolio underlying the CDO was selected by ACA Management LLC (ACA), a third party with expertise in analyzing credit risk in RMBS. The SEC alleges that undisclosed in the marketing materials and unbeknownst to investors, the Paulson & Co. hedge fund, which was poised to benefit if the RMBS defaulted, played a significant role in selecting which RMBS should make up the portfolio.
The SEC’s complaint alleges that after participating in the portfolio selection, Paulson & Co. effectively shorted the RMBS portfolio it helped select by entering into credit default swaps (CDS) with Goldman Sachs to buy protection on specific layers of the ABACUS capital structure. Given that financial short interest, Paulson & Co. had an economic incentive to select RMBS that it expected to experience credit events in the near future. Goldman Sachs did not disclose Paulson & Co.’s short position or its role in the collateral selection process in the term sheet, flip book, offering memorandum, or other marketing materials provided to investors.
If true, the SEC’s charges are pretty serious — which might be why Goldman’s stock is taking a beating on the news.
Would you buy stocks from a guy who has a tv set that looks like an insane game show? Who can the people be who follow that kook.
I don’t like GS because, moreso than other financial houses, they are rent-seekers. Their whole business model involves getting their former employees jobs in government or quasi-government.
From a free market point of view, the whole financial sector is poison. It’s so heavily regulated that the companies are not allowed to fail. It’s very corrupt, as the donations to Chuck Schumer and Chris Dodd indicate.
As I understand it (partly from a report on CNBC) an officer at Goldman would select real estate loans to go into a CBO and based on the known low quality of those selections, short sell the same CBO as it was sold to investors that thought that they were getting quality securities. In other words, the same company that created the CBO shorted it after selling it. Man, that is cold and criminal.
“But Jim Cramer’s claim to fame is being successful hedge fund manager,” egannacht says as he contemplates the topic at hand.
Wait a minute. We now know that the structure required permanently rising housing values and that the government enabled the whole enterprise (which makes it stunningly hypoocritical to even level these charges without having the grace to include themselves). We only suspected it then. Goldman, Sachs people were smarter than the average bear (or bull) and knew to bet against a flimsy structure they were basically being ordered to construct and vend.
This is at least a diversion, and is probably a propaganda tool to push complete government control of the financial system and is certainly a red herring to cover government malfeasance in the whole operation, going back at least as far as Clinton and probably as far back as Carter.
Anyway The market being down over 150 watch now. The Plunge Protection Team will come in later to get the market back over 11,000 to end the week. This will protect Obamanomical Recovery rhetoric and still help Obama with his takeover regulations.
Camp 1 blames the homeowner.
Camp 2 blames the bankers and Wall Street.
I'm in Camp 3. I blame all involved - from Government creating the problem under Carter and making it worse under Clinton and Bush 2, to banks playing fast and loose with the documentation and rules, to the buyers trying to get more house than they could ever truly afford, to the owners for using their houses as ATMs or to turn a quick profit instead of looking at a house as a home to grow up or grow old in.
A private hedge fund cannot "order" Goldman to construct and vend a security. In this case, John Paulson, a private HF manager, made a deal with Goldman to construct a packaged structure specifically so Paulson could bet against it. Goldman made money on the structuring, and I'm sure got a nice chunk of change from John Paulson. They then marketed the deal as if it was composed of worthwhile investments, even though they purposely structured it to be composed of investments that were expected to fail.
I have no problem with people making money in the markets by betting against the herd, but in this case the deal crossed a line into the territory marked "abject fraud."
This is the mortgage meltdown equivalent of Henry Blodgett giving buy ratings to Amazon stock at the same time he privately said the stock was a piece of excrement.
Remember what the purpose of the funds were: to buffer the risks of the loans being extended by trying to even out the risk level across all borrowers. This is normal hedge fund behavior and only necessary because of government action not hedge fund manager action).
I’m mostly incensed that the government has waited until now to issue these complaints (they would have been and were just as obvious in Sep 2008 as they are now).
That screaming psychopath is a 100% contrarian indicator. Whatever he says, the opposite happens.
There comes a point of saturation after which the lethargy of the the legislative branch, having been been repeatedly informed and shown clear, undeniable evidence of the massive criminal fraud behind the foreclosure crisis, can only be viewed as tacit approval and complicit aiding and abetting of the criminal fraud itself.
It is very concerning that elected officials may be incriminating themselves as accessories after the fact should they vote in favor of FL HB1523 and FL SB2270.
Unlawful and false affidavits of indebtedness, parties filing foreclosure who are not parties to the transaction, false endorsements and/or allonges that merely contain a stamp on a blank piece of paper with no identifying features of the property it claims to attach itself to, and mere copies of purported documents being passed off as original documents.
Is it possible to walk into a bank with a copy of a check and expect the teller to cash it- of course not. A copy of a check is no more negotiable than a copy of a promissory note. I have seen assignments of mortgage that have so much white sticky strips all over the face of the document where there is writing on top and underneath the white strips, assignments of mortgage that state BOGUS as the grantor, and assignments of mortgage that have witnesses signing as a completely different name than the typed name under the signature line.
In addition, if, between 2001 and 2007, you or anyone in your family signed a mortgage backed promissory note, I urge you to hire any of the top fraud examiners in your state to review what may be an eye opening experience. Sometimes, personal experience is the best educator.
All of the above mentioned items are fraudulent. From this point going forward, legislators are hereby noticed that that there is enormous fraud occurring on practically each and every foreclosure filed against homeowners each and every day.
By ignoring the rampant fraud perpetrated by illegal parties, legislators automatically become accessories after the fact which is a crime. By voting in favor of HB1523 and SB2270 legislators are a party to the fraud which is a prosecutable offense.
Furthermore, legislators eagerness to sign their names to a bill that will literally result in extraordinary harm to their constituents is causing red flags to go up that they personally may have an undisclosed relationship with the parties pushing so hard to get these bills passed so quickly.
http://www.foreclosurehamlet.org
RE:
Don’t get distracted. Who runs the SEC?
Answer: Obama
Are you insinuating that the current head of the SEC, Mary Schapiro ( who used to head the surveillance and compliance arm of NASDAQ ) is Obama’s lapdog ?
they are not falling, they are being crucified. Their sacrifice is being made to save the Queeah from Massachusetts and the resigning Chris Dodd
The interesting thing is going to be the trial where there will be depositions and testimony of those who twisted arms at banks to encourage bad loans.
Remember, Chris Dodd got a sweetheart loan but there is no evidence he ever repaid anything.
I wish I would have listened to him for once. Today sure was a FAZ day!
Glad i didn't give up and sell my FAZ yesterday. I was tempted too. It seemed like this low volume rally would never end.
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