SEC sues Goldman Sachs for securities fraud in subprime bond scam

April 16, 2010

(ChattahBox) – While the financial-reform debate rages on, the Securities and Exchange Commission has filed a civil suit against Goldman Sachs on Friday, charging the bank and one of its vice presidents Fabrice Tourre, with securities fraud. The lawsuit focuses on a specific financial instrument that Goldman created called the Abacus 2007-AC1.  The SEC’s complaint alleges that Goldman allowed hedge fund Paulson & Co., run by John Paulson, who made billions of dollars betting on the subprime collapse — to help select securities in the collateralized debt obligation, or CDO. Goldman allowed Paulson to select the bonds he wanted to short, then it packaged those bonds in the Abacus 2007-AC1 and sold them to investors. Central to the SEC’s case is the allegation that investors in this CDO were told the components were chosen by an independent third party. Those investors eventually lost a billion dollars on the bond when the bubble burst while Paulson raked in a profit. Goldman itself profited by betting against the very mortgage investments that it sold to its customers. The NY Time writes, “[T]he 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.” The suit is the first time regulators have targeted a Wall Street deal that allowed investors to make money off the financial crisis.


Comments

2 Responses to “SEC sues Goldman Sachs for securities fraud in subprime bond scam”

  1. Goldman Sachs Defends $5b for Officers and Staff in Spite of Fraud Allegations | Commercial Loan Vault on April 17th, 2010 7:31 pm

    […] SEC sues Goldman Sachs for securities fraud in subprime bond scam … […]

  2. Nick.Henrey on September 9th, 2010 5:16 am

    What Paulson did was like insuring a home he knew was going to burn. He should be prosecuted and his time will come. As for GS this is just the tip of the iceburg. Wall Street is a club of well educatedcheaters. Untilthe nation wakes up and refuses to invest with these crooks,nothing will change. And I think Obama has been bought off by Wall Street which is so dissappointing.

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