New York, NY: Goldman Sachs has been charged with fraud by the Securities and Exchange Commission (SEC), over allegations that the financial institution's subprime mortgage product ABACUS - 2007 ABC1, was designed to fail, and thereby defrauded investors in a sale of securities tied to subprime mortgages. Goldman vice president Fabrice Tourre, has also been charged for his alleged role in creating the dubious product.
According to a report on MSNBC.com, the lawsuit alleges that Goldman Sachs structured and marketed ABACUS, "a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities." And, that the company failed to inform investors of "vital information" concerning the mortgage product including the fact that Paulson & Co, a company that made billions betting the US housing market would crash, was involved in selecting securities for part of the portfolio. Paulson & Co has admitted buying credit protection from Goldman Sachs, but insisted that it did not market ABACUS.
Reportedly, Paulson and Co paid $15 million to Goldman Sachs to structure and market the ABACUS CDO. Roughly nine months after it closed, in April 2007, 99 percent of the portfolio had been downgraded.
"These charges are far more severe than anyone had imagined," and imply that the financial institution paired up with "the leading short-seller in the industry to design a portfolio of securities that would crash," John Coffee, a securities law professor at Columbia Law School in New York, told MSNBC.com.
The lawsuit comes on the heels of efforts by the institution to fend off complaints that it is an unfair beneficiary of taxpayer bailouts of Wall Street.
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Last updated on Apr-16-10 |
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