Goldman Sued by SEC for Subprime Mortgage Bond Fraud

Could it be that Goldman Sachs, the "great vampire squid wrapped around the face of humanity," is sustaining damage to one of its tentacles? This morning the S.E.C. filed a civil suit accusing the firm of securities fraud, sending Goldman's stock plunging. "The product was new and complex, but the deception and conflicts are old and simple," Robert Khuzami, the director of the S.E.C.’s division of enforcement, said in a statement. "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."

The S.E.C. is accusing Goldman of selling mortgage bonds to investors that they thought might default. This was going on in 2007, and according to the Times, hedge fund manager John A. Paulson "earned" an estimated $3.7 billion by correctly wagering that the housing bubble would burst. While Goldman was selling these bonds—which Paulson believed were most likely to lose value—to investors, Paulson was also buying insurance on them, so that when the bonds plunged and defaults spread, he cashed in on the collapse. The investors lost their shirts.

The S.E.C. charges Goldman with failing to disclose to investors "vital information" about the mortgage bonds. While the bank and Vice President Fabrice Tourre, who is named in the lawsuit, disclosed the ratings of the bonds, they did not disclose that Paulson was simultaneously betting that those ratings were wrong. In a statement defending itself last week, Godman reps said, "We certainly did not know the future of the residential housing market in the first half of 2007 anymore than we can predict the future of markets today." They're not Nostradamus, they just made a lucky bet, that's all.

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By John Del Signore in News on April 16, 2010 12:01 PM

Comments [rss]

without hope

love liberals. They do every thing in their power to cripple and weaken the financial sector then run crying and complaining when it happens. Why would Obama do this during the recovery of the great recession?

ed_Extinct

here we go again!

Mr. Shankly

The vampire squid can always regrow its tentacles.

dkim2015

Civil suit = civil damages. Just an opinion:

Its just gonna be a Couple million. Sec and fdic are looking to make an example of the mortgage fraud crisis. As we know a lot of big institutions were involved in the schemes but GS is getting the headline cause of the ongoing commotion of their big gains and use of tarp money. everyone was pooling bad loans along with good loans to inflate ratings and it would have been fine until the economy went sour and things accelerated.

Gs was actually down about 15% today. I picked up some shares.

boogpowell

They should just hire these goldman guys to run the government. At least while the government continually screws everyone maybe they could make some money out of and get out of this deficit instead of being insanely broke.

bobchadwick

Does anyone know why it's a civil suit rather than a criminal case?

bobchadwick

Um...I think they already did that. Obama's administration is full of former Goldman Sachs employees.

Bubba

If they would take a couple of these Goldman fuckers and behead them in front of the NYSE a lot of these financial shenanigans would end pronto.

NannyState

I don't care what they say, I'm keeping my tote bag.

Theodore Wirth

Is this evidence that there is indeed a God?

longacre

No. They'll play it off that they were taken by a couple of rogue execs and GS will live happily every after. CNBC is already helping them do this.

TimSPC

The Big 12 is still better.

HughGass

I wonder of Paulson will be indicted, he'll most certainly be sued by the investors.

hotstepper

good news, good news! coo, coo! i love it, i love it!

Rocknrope

The most shocking thing about this story is that the SEC is actually doing their job.

longacre

Obama will quietly disband the SEC over the weekend.

Wza

lol..seriously.

JenChungsBaby

WHERE ARE THE GOLDMAN APOLOGISTS TODAY?

Goldman allowed a preferred client to cherry pick mortgage securities that he thought were going to fail, bundled those into a "financial product," and then lied and sold that product to suckers while the firm and its preferred client made a killing betting against the same financial product.

NICE ONE, HUH?

matty

"We certainly did not know the future of the residential housing market in the first half of 2007 anymore than we can predict the future of markets today."

BUUUULSHIT