Ok, kids. This just got real
I mean this is all routine and what, what. The SEC makes a referral to the U.S. Attorney who initiates an investigation that may or may not result in a criminal probe.
via ABC News
Relating to their subprime-related securities business, unsurprisingly. A civil fraud complaint has been filed
today by the SEC against the behemoth investment firm:The SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.
Also at issue is the role of hedge fund Paulson & Co, the multi-billion dollar concern run by bespectacled billionaire, John Paulson. The firm participated significantly in the portfolio selection for Goldman's sub-prome CDO product, ABACUS and later adopted a short position on the product, entering in to credit default swaps with Goldman and placing itself in a position of financial interest should the ABACUS portfolio implode (which it did).
Interestingly, having bet for (and then against) the sub prime mortgage market, Paulson has, via his Recovery Fund
, made more millions betting on a rise MBS value.
The tip on the Goldman / Paulson relationsip appears to have come via Paolo Pellegrini
, a former Paulson & Co employee who has provided a deposition to the SEC relating to the case. Pellegrini (P-squared to his friends
, a derivatives expert prior to joining the fund, was involved in orchestrating
the firm's bets against the sub prime market. Pellegrini resigned from Paulson & Co in December of 2009.
While Paulson has not been charged by the SEC with any wrongdoing, the complaint specifically names Goldman Vice President, Fabrice Tourre
, who structured the ABACUS CDO deal as being primarily responsible for the fraud.
The SEC's charges arise primarily from Goldman's failure to disclose Paulson & Co.'s role in portfolio selection in marketing and promotional materials
concerning the ABACUS funds. Paulson's firm had no such obligation
Goldman, as you might expect, denies any wrongdoing.