Sorry, subscription to the Wall Street Journal needed. I wanted to get this out quickly, as it just broke.
The Securities & Exchange Commission charged Goldman Sachs Group Inc. and one of its vice presidents for defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages.
The SEC said Goldman Sachs structured and marketed a synthetic collateralized-debt obligation, or CDO, that hinged on the performance of subprime residential mortgage-backed securities.
The CDO was structured and marketed by Goldman in early 2007 when the U.S. housing market and related securities were beginning to show signs of distress, the SEC complaint said According to the SEC, 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.
“Undisclosed in the marketing materials and unbeknownst to investors, a large hedge fund, Paulson & Co. Inc. [“Paulson”], with economic interests directly adverse to investors in the [CDO], played a significant role in the portfolio selection process,” the complaint said.
“The product was new and complex but the deception and conflicts are old and simple,” said Robert Khuzami, Director of the Division of Enforcement.
The SEC also named Goldman employee Fabrice Tourre in the complaint, saying she was “principally responsible” for creating the CDO…..
Someone in the comments at the Wall Street Journal asked how Goldman would get out of this one. Here was an excellent reply:
Easy: they’ll pay a trivial fine while admitting no wrongdoing, no one higher than the unfortunate working for the trader will be convicted of anything, and obama and co will say it’s a great day for justice in america. duh.
I will not get my hopes up, but let us hope that Ms. Tourre considers her rights as a whistle-blower and uses them to inform on those higher up the Government Sachs food chain.