Goldman Sachs Charged with Securities Fraud

The Goldman Sachs Group, Inc., has been charged by the Securities and Exchange Commission with securities fraud in the structuring and marketing of a financial product tied to subprime mortgages.
The SEC said April 16, 2010, that Goldman failed to disclose to investors that a major hedge fund, Paulson & Co., paid the firm about $15 million to structure a collateralized debt obligation (CDO) in which it took short positions against mortgage securities that had in large part been chosen by Paulson. Investors in the CDO lost over $1 billion, while Paulson reaped approximately an equal amount in profit.
“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,” said SEC Director of the Division of Enforcement Robert Khuzami.
Included in the SEC charges is that Goldman Vice President Fabrice Tourre in early 2007 allegedly structured the transaction, prepared the marketing materials, and communicated directly with investors.
Goldman Counters
In a statement, Goldman countered that the SEC charges “are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation.”
Response from Capitol Hill
On Capitol Hill, Sen. Ted Kaufman, D-Del., a member of the Senate Judiciary Committee, urged that “however long it takes, whatever resources the SEC needs, Congress needs to continue to back the SEC and the Justice Department in their efforts to uncover wrongdoing.”
Sen. Bernie Sanders, I-Vt., said that while the action was “slow in coming, I applaud the SEC for finally beginning to deal with the illegal behavior of major Wall Street firms.”