Goldman Sachs accused of fraud by US regulator SEC
Fri, 16 Apr 2010 14:56 EDT
Goldman Sachs, the Wall Street powerhouse, has been accused of defrauding investors by America's financial regulator.
The Securities and Exchange Commission (SEC) alleges that Goldman failed to disclose conflicts of interest.
The claims concern Goldman's marketing of sub-prime mortgage investments just as the US housing market faltered.
Goldman rejected the SEC's allegations, saying that it would "vigorously" defend its reputation.
News that the SEC was pressing civil fraud charges against Goldman and one of its London-based vice presidents, Fabrice Tourre, sent shares in the investment bank tumbling 12%.
The SEC says Goldman failed to disclose "vital information" that one of its clients, Paulson & Co, helped choose which securities were packaged into the mortgage portfolio.
These securities were sold to investors in 2007.
But Goldman did not disclose that Paulson, one of the world's largest hedge funds, had bet that the value of the securities would fall.
The SEC said: "Unbeknownst to investors, Paulson... which was posed to benefit if the [securities] defaulted, played a significant role in selecting which [securities] should make up the portfolio."
"In sum, Goldman Sachs arranged a transaction at Paulson's request in which Paulson heavily influenced the selection of the portfolio to suit its economic interests," said the Commission.
The SEC alleges that investors in the mortgage securities, packaged into a vehicle called Abacus, lost more than $1bn (£650m) in the US housing collapse.
Mr Tourre was principally behind the creation of Abacus, which agreed its deal with Paulson in April 2007, the SEC said.
The Commission alleges that Mr Tourre knew the market in mortgage-backed securities was about to be hit well before this date.
The SEC's court document quotes an email from Mr Tourre to a friend in January 2007. "More and more leverage in the system. Only potential survivor, the fabulous Fab[rice Tourre]... standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!"
Goldman denied any wrongdoing, saying in a brief statement: "The SEC's charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation."
Calls to Mr Tourre's office were referred to the Goldman press office. Paulson has not been charged.
Goldman, arguably the world's most prestigious investment bank, had escaped relatively unscathed from the global financial meltdown.
This is the first time regulators have acted against a Wall Street deal that allegedly helped investors take advantage of the US housing market collapse.
Analyst Matt McCormick of Bahl & Gaynor said that the allegation could "be a fulcrum to push for even tighter regulation".
"Goldman has a fight in front of it," he said.
http://www.sott.net/articles/show/20695 ... ulator-SEC
This is just the tip of the iceberg..What lies beneath (pun intended), if exposed, would reveal the true nature of this corporation and would most probably mean its collapse.
Be Your Own Messiah
Be Your Own Messiah
By Michael Patterson and Tony Czuczka
April 19 (Bloomberg) -- Goldman Sachs Group Inc. faces a regulatory probe in Britain and scrutiny from the German government after the U.S. Securities and Exchange Commission sued the firm for fraud tied to collateralized debt obligations.
Prime Minister Gordon Brown called yesterday for the Financial Services Authority to start an inquiry, saying he was “shocked” at the “moral bankruptcy” indicated in the suit. Germany’s financial regulator, Bafin, asked the SEC for details on the suit, a spokesman for Chancellor Angela Merkel said.
Politicians that were forced to bail out their banks during the financial crisis are turning on Goldman, which critics say helped caused the turmoil and profited from it. The European Union is also probing Goldman’s role in arranging swaps for Greece that may have masked the country’s budget deficit.
“We will see politicians throughout the world piling on Goldman Sachs,” said Scott Moeller, a former investment banker now teaching at Cass Business School in London. “Now they have vulnerability. Everyone and anyone, especially politicians, are going to be trying to make hay with this one.”
The SEC said that in early 2007, as the U.S. housing market teetered, Goldman Sachs created and sold a CDO linked to subprime mortgages without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against the vehicle, known as Abacus 2007-AC1.
‘People Were Misled’
The firm denies any wrongdoing. Fiona Laffan, a spokeswoman for Goldman Sachs, and Heidi Ashley, a spokeswoman for the FSA, declined to comment.
“It looks as if people were misled about what happened,” Brown, who faces a national election on May 6, said on the BBC’s Andrew Marr program yesterday. “The banks are still an issue. They are a risk to the economy.’
Royal Bank of Scotland Group Plc paid $841 million to Goldman Sachs to unwind its position in Abacus, which it inherited when it bought parts of ABN Amro in 2007, according to the SEC. The Edinburgh-based lender is now controlled by the British government after receiving a 45.5 billion-pound ($70 billion) taxpayer rescue, the world’s biggest banking bailout.
The SEC said Goldman Sachs misled investor IKB Deutsche Industriebank AG about Paulson’s role in the trade. Dusseldorf- based IKB lost about $150 million in the Abacus CDO, most of which went to Paulson, which reaped a $1 billion profit in total from betting against the vehicle, according to the SEC.
IKB became Germany’s first casualty of the U.S. subprime- mortgage crisis in 2007 after its investments in asset-backed securities soured. KfW, Germany’s state-owned development bank, pumped almost 10 billion euros ($13.5 billion) into IKB in 2008 to shore up the country’s banking system.
The German government “will ask the SEC for information,” said Ulrich Wilhelm, a spokesman for Merkel. “Then we will look at the records and consider possible legal steps.”
Goldman Sachs said in a statement it had provided “extensive disclosure” to IKB about the risk of the underlying mortgage securities. Paulson, which hasn’t been charged with any wrongdoing, said in a statement that it didn’t “sponsor or initiate” Goldman’s Abacus program. The fund said that while it did purchase credit protection from Goldman on some Abacus securities, it wasn’t involved in the marketing.
‘Profound and Thorough’
The EU is investigating Goldman Sachs over swaps it arranged for Greece in 2002. The country entered a cross- currency swap with Goldman Sachs on about $10 billion of debt issued in dollars and yen. That was swapped into euros using a historical exchange rate, a mechanism that generated about $1 billion in an up-front payment from Goldman to Greece. Goldman has said it did nothing wrong.
The probe will be “profound and thorough,” EU Monetary Affairs Commissioner Olli Rehn said at a press conference in Madrid on April 17.
Kim Soo Mi, a spokeswoman for South Korea’s Financial Supervisory Service, said the regulator “is monitoring market developments overseas as well as in South Korea, and we plan to review the status of South Korean financial institutions’ exposure to that CDO product of Goldman Sachs.”
The New York-based firm is already under attack for its role as a trading partner to American International Group Inc., the insurer bailed out by the U.S. government. Goldman Sachs said April 7 that AIG’s bailout in 2008 helped the bank and every other financial firm because the insurer’s collapse would have been “extremely” disruptive to financial markets.
The $182.3 billion bailout ensured that Goldman Sachs and other counterparties were repaid in full. Much of the $12.9 billion Goldman Sachs received from AIG’s rescue was paid out to meet AIG-linked “obligations,” the firm said.
http://www.bloomberg.com/apps/news?pid= ... SmRVxms8jg
Be Your Own Messiah
Submitted by Tyler Durden on 04/18/2010 10:18 -050
As expected, the line of people preparing to sue Goldman is now longer than the posers who bought the iPad on launch day. Reuters reports that British Prime Minister Gordon Brown, who himself has been in hot water over his much lamented decision to sell UK's gold despite protests from the BOE and likely under the guidance of Goldman and JPM, wants an investigation into the Goldman affair by the FSA, and is saying that impacted UK banks will be considering legal action. Furthermore, GB slammed Goldman after the TimesOnline reported that Goldman will pay $5.6 billion in bonuses for just three months work, including 600 million pounds for London-based staff. Among other things, the ratings-strapped politician, who as recently as ten years ago was doing the bidding precisely of Goldman and its cronies when dumping the gold stash, accused the bank of "moral bankruptcy." We assume is referring to Chapter 11. Of course, that would imply that Brown's hypocrisy should be sufficient for immediate Chapter 7 liquidation proceedings.
Brown, who is fighting an election campaign, piled pressure on Wall Street's most powerful bank, accusing it of "moral bankruptcy" over reported plans to pay big bonuses.
"I want a special investigation done into the entanglement of Goldman Sachs and the companies there with other banks and what happened," Brown told BBC television.
"There are hundreds of millions of pounds have been traded here and it looks as if people were misled about what happened. I want the Financial Services Authority (FSA) to investigate it immediately," he said.
"I know that the banks themselves will be considering legal action," Brown said, apparently referring to European banks that lost money on the product marketed by Goldman Sachs.
"We will work with the Securities and Exchange Commission in the United States," he said.
A spokeswoman for the FSA declined comment. "We would never confirm or deny we are investigating anybody," she said.
And here is the latest confirmation that Goldman is pursuing nothing less than a first derivative of accelerated wealth transfer before the world ends: the Times of London has discovered that the firm is paying an unprecedented stub bonus of $5.6 billion for the first quarter. Goldman knows its days are numbered so it will pay off as much as it possibly can to its employees before the walls come crashing down. From TimesOnline.
GOLDMAN SACHS, the world’s biggest investment bank that is now assailed by accusations of fraud, is poised to reignite controversy over bankers’ bonuses by paying its staff more than £3.5 billion for just three months’ work.
The bumper payouts will equate to about £110,000 a head for the firm’s 32,500 employees worldwide, with a handful of top traders expected to be in line for multi-million-pound bonuses.
Close to £600m is expected to be paid to the group’s 5,500 London-based staff for the first three months of this year. This is on a par with their remuneration in 2007, the last year of the boom.
The revelation of the enormous pay deals comes as Goldman prepares for a legal battle with the US government. The group was sued on Friday by the Securities and Exchange Commission, the Wall Street regulator, over claims it defrauded investors of $1 billion. Goldman denies the charges.
It appears that despite concerns that this is nothing but a staged pr campaign, the end could very well be in sight for Goldman.
http://www.zerohedge.com/article/yester ... tub-bonuse
Be Your Own Messiah
- ID: 62e703f4c3f9
I say we rip the stock system apart and get rid of it, I also say we take back congress and the presidency and replace them with constitutionally correct figures.
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