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  1. #1
    Mid
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    Regulator charges Goldman Sachs with fraud

    Regulator charges Goldman Sachs with fraud
    Craig McMurtrie


    Toxic mortgages: when the market crashed, Goldman investors lost heavily while the bank made a profit
    (AFP: Chris Hondros)

    more and more leverage in the system, the whole building is about to collapse anytime now ... only potential survivor the fabulous Fab ... standing in the middle of all these complex, highly leveraged, exotic trades he created.
    – Goldman Sachs executive Fabrice Tourre


    Wall Street has been rocked by news that Goldman Sachs has been charged with defrauding investors in the lead-up to the financial crisis.

    The bank is accused of failing to tell clients that a hedge fund betting against the mortgage market had a hand in picking a portfolio of mortgage securities they were being asked to invest in.

    US regulators say the hedge fund had an incentive to choose toxic subprime mortgages.

    When the market collapsed, investors lost heavily while the hedge fund profited by a billion dollars.

    The Wall Street giant's shares plunged on the news, with analysts speculating that US regulators could widen their net to snare other banks.

    "Today we charged Goldman Sachs with fraud, in connection with the structure and marketing of a synthetic CDO in April of 2007," director of the Securities and Exchange Commission enforcement division, Robert Khuzami, said.

    A synthetic collateralised debt obligation (CDO) is a mortgage backed security, and Goldman Sachs was not alone in using them.

    The SEC says the bank told its clients that the make-up of the investment portfolio was picked independently.

    Mr Khuzami says they did not tell them that in fact a hedge fund betting against the mortgage market was heavily involved.

    "Undisclosed in the marketing materials was that a large hedge fund, Paulson and Company, played a significant role in the selection of the portfolio selection process and had an economic incentive to choose what it viewed as the poorest quality triple B rated mortgage securities," he said.

    The 31-year-old Goldman Sachs executive in charge of the deal, Fabrice Tourre, has also been charged.

    As financial markets were about to enter meltdown he wrote in an email: "more and more leverage in the system, the whole building is about to collapse anytime now ... only potential survivor the fabulous Fab ... standing in the middle of all these complex, highly leveraged, exotic trades he created."

    When the subprime mortgage crisis hit and financial markets crashed, Goldman investors lost heavily while the bank made a profit and the hedge fund walked away with an estimated $1 billion.

    Goldman Sachs was later bailed out by US taxpayers.

    News of the civil fraud charge stung Wall Street traders like Warren Meyers.

    "Obviously they had all this information as of this morning. They could have done this pre-market and [made] it a little calmer," he said.

    "I think the fact they came out mid-morning during trading sends a real splash and shockwave out to everyone. Maybe it's a wake up call: 'you better check yourselves and make sure you're clean.'"

    In a statement, Goldman Sachs says the charges are "completely unfounded in law", and it promises to "vigorously contest them".

    Andrew Ball, from Whitton Investment Trusts, says the case will centre on whether people lost money because Goldman Sachs failed to warn them of the risks.

    "The key things are clearly going to be, which I have to leave the lawyers to sort out, did they fail to make a disclosure and if they did was that failure actually material in causing the losses," he said.

    But the news rocked Wall Street and analysts warn this could just be the start. The US Securities and Exchange Commission says it is still investigating.

    "We're going to continue to look at products and practices across the spectrum that are implicated by the financial crisis and if we find structures or deals or arrangements that share similar profiles to this one as well as other structures or transactions that violate the securities laws, we will pursue them aggressively," it said.

    Observers say this puts more pressure on the US Justice Department to bring possible criminal charges in the fallout over the financial crisis and the SEC move could also strengthen the White House push for sweeping financial regulation.

    xxx.xxx.xx

  2. #2
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    The SEC is finally developing some balls. Meanwhile Republicans in the US senate, led by Mitch McConnell, are determined to block Wall Street reforms. Mc Connell has accepted millions in campaign money from Wall Street. I guess we know who his bosses are.

  3. #3
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    What race are these people?? Chinese,blacks,hispanics?? Is there any pattern of roguery emerging we should know about?

  4. #4
    JoeMoer
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    Interesting article. Thank you.

  5. #5
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    ^I don't think we can describe financial roguery perpetrated by Jewish firms to be an 'emerging' phenomena.

  6. #6
    I am in Jail
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    not expecting anything from it,

    GS is so huge, they can manage and hide a whole country debt

  7. #7
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    Quote Originally Posted by crippen
    What race are these people??
    Don't be so nosey.

  8. #8
    Pronce. PH said so AGAIN!
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    Interesting timing coming when the Dems are trying to push tougher financial regulations through. It's like they are daring the GOP to oppose it or try to water it down.

    The WSJ has a detailed article about the GS case:

    SEC Charges Goldman With Fraud - WSJ.com

  9. #9
    Pronce. PH said so AGAIN!
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  10. #10
    Hansum Man! panama hat's Avatar
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    No, no . . . egads. Government regulations in this industry! Nooooo, let them be self-policing.

    Nanny State

    Black helicopters

    Government stay out of money markets

    Government stay out of governing

  11. #11
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    I guess that means they are going to pull the democrats funding if this goes forward?

    Or maybe they didnt give enough?

  12. #12
    Days Work Done! Norton's Avatar
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    Quote Originally Posted by Mid
    "Obviously they had all this information as of this morning. They could have done this pre-market and [made] it a little calmer,"
    Bugger off. No sympathy from me. Worried this might make folks realize they are investing in a rigged game.

    Quote Originally Posted by Mid
    "The key things are clearly going to be, which I have to leave the lawyers to sort out, did they fail to make a disclosure and if they did was that failure actually material in causing the losses,"
    Unfortunately Goldman Sachs will fight the charge with endless legal arguments and appeals. Don't hold your breath. Will take forever to reach any final "settlement".

  13. #13
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    This info has been known for some time as the SEC has been investigating for over 2 years... The New York Times broke the story in December 2009, so no mystery there...

    Goldman categorically denies they were shorting the positions and were actually long... Plus, they were not the broker on the deal so they have no fiduciary responsibility...

    The timing of the announcement was politically motivated by BO to cause panic, thus forcing the republicans to get onboard and force financial reform legislation through Congress before the end of April... This little stunt sucked billions out of Goldman's liquidity in a matter of minutes, which in return took the rest of the market with it... All top analysts still have Goldman Sachs as a buy as they go into earnings reports next week...

    After listening to the pundits discuss the case yesterday, it is without merit... Of course it will take years of litigation and millions of $$$ to pursue, with the outcome being nada... Of course, the SEC has such a sterling reputation for enforcement of industry regulations, they let the likes of Bernie Maddoff continue his ponzi scheme for decades after having the case handed to them on a silver platter... Asshats, every one...
    Give a man a match, and he'll be warm for a minute, but set him on fire, and he'll be warm for the rest of his life.

  14. #14
    I am in Jail

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    Like this is anything new. Another Dem hype story to buttress their fin reg bill. You wanna talk about Ponzi schemes, Muad, take a look at obama's healthcare setup.

  15. #15
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    More regulation is not what is needed, we had regulation but they chose not to look or enforce.
    How about no regulation, caveat emptor, risk?
    Would you lend/invest me (a stranger) with a million quid if the government (taxpayer) will cover your losses ? yes you would (and even bet I wont pay you back in the meantime describing me as aaa grade) and get the taxpayer to bail this bet out when the "bookie" cannot pay as in the AIG and Government Sachs credit default swap bailout.
    Would you lend it to me if there will be no bailout and any losses are your own ? Would you feck.

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