WC Varones

Don't lend your hand to raise no flag atop no ship of fools

SEC charges Goldman Sachs with fraud

Obviously, somebody at the SEC didn't get the memo: you don't touch Goldman. You mess with them, you might not get a 7-figure job on Wall Street when you're done at the SEC.

NYT:
According to the complaint, Goldman created Abacus 2007-AC1 in February 2007, at the request of John A. Paulson, a prominent hedge fund manager who earned an estimated $3.7 billion in 2007 by correctly wagering that the housing bubble would burst.

Goldman let Mr. Paulson select mortgage bonds that he wanted to bet against — the ones he believed were most likely to lose value — and packaged those bonds into Abacus 2007-AC1, according to the S.E.C. complaint. Goldman then sold the Abacus deal to investors like foreign banks, pension funds, insurance companies and other hedge funds.

But the deck was stacked against the Abacus investors, the complaint contends, because the investment was filled with bonds chosen by Mr. Paulson as likely to default. Goldman told investors in Abacus marketing materials reviewed by The Times that the bonds would be chosen by an independent manager.

Somebody at the SEC is going to get taken to the woodshed for this, and Goldman will pay a trivial fine and promise not to do it again.

4 comments:

Jr Deputy Accountant said...

The lead attorney in the case against Goldman, Richard E. Simpson, was the lead attorney in the case against Crazy Eddie. So the guy isn't afraid to jump a buzzsaw or twenty, in fact, if anyone is up for it...

What's awesome is Sam Antar is working with the guy now.

Independent Accountant said...

Junior:
I see the SEC's case against Vampire Squid (VS) as a headfake. Nothing more. If the SEC was serious, it would stand aside and squeeze the SDNY NY Attorney's office into indicting VS's senior executives. Starting with He who "does God's work". The SEC has the message: "Put on a show for the peasants. Have VS pay a few hundred million. Now back to business as usual". What's a few hundred million to VS anyway?

Pop

Anonymous said...

If the gov't can prove that Goldman wasn't sincerely selling diverse CDOs (CDOs only benefit is diversity) then they can really prove main street's accusation that the housing bubble is WS bankers' collective fault. And you know what? They'd be sorta right.

Taken to the extreme, if Paulson/ACA were cherry picking toxic mortgages for inclusion then they would be increasing demand for loans that lead to toxic mortgages. They'd effectively be incentivizing mortgage brokers to lend to morons who will default... which jibes with many conclusions that I hear anecdotally but couldn't believe (chalked it up to exuberance).

This is the opposite of the classic strategy of beating up the business you want to buy so you can buy it cheaper. This is pumping up the crap asset you want to short so you can short it higher.

I believe this lawsuit has legs and may set a precedent!

Anonymous said...

"I believe this lawsuit has legs and may set a precedent!"

I view it as a beginning. A tiny, but not insignificant, little crack in the Hoover Dam - a dam that holds back a very large amount of water that is under intense pressure. Welcome to Hell G.S. EVERYBODY wants a piece of that sweet squid ass.

Jeff

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