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SEC charges Goldman Sachs with fraud

Discussion in 'TRIBE Main Forum' started by alexd, Apr 16, 2010.

  1. alexd

    alexd Administrator Staff Member

    April 16, 2010, 10:50 a.m. EDT

    SEC charges Goldman Sachs with fraud

    SAN FRANCISCO (MarketWatch) -- The Securities and Exchange Commission on Friday charged Goldman Sachs & Co. (NYSE:GS) and one of its vice presidents for defrauding investors by misstating and omitting key facts about a financial product related to subprime mortgages.

    The SEC alleges that Goldman Sachs structured and marketed a collateralized debt obligation that hinged on the performance of subprime residential mortgage-backed securities. However, it failed to disclose the role that a major hedge fund, Paulson & Co., played in the portfolio selection process as well as the fact that the hedge fund had taken a short position against the CDO. "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 Robert Khuzami, director of the division of enforcement, in a statement.
  2. acheron

    acheron TRIBE Member

    This American Life's podcast for this past week talked about Magnetcorp, a company that did this exact thing - creating massive CDOs and then taking short positions against them - ultimately costing banks/investors over 40 billion dollars in lost value, while they pocketed hundreds of millions of dollars in profits during the subprime crash.
  3. alexd

    alexd Administrator Staff Member

    Gold Man-Sacks
  4. rawd

    rawd TRIBE Member

    That's the Pride float I'm on this year. *whistle*
  5. acheron

    acheron TRIBE Member

    Is the float behind yours Bears Turns?

    (featuring a bunch of dancing bears of course)
  6. Bernnie Federko

    Bernnie Federko TRIBE Member

    GS is in some big trouble. That shit cost their share value over 10% today. This goin' be expensive, methinks.
  7. acheron

    acheron TRIBE Member

    Just the beginning - it's starting to look like that's the way these CDO things work, and it makes sense. Of course the banks aren't stupid. They know the mortgages are toxic. They put just enough semi-ok mortgages on the top tranch of the CDO to make people think they're diversified, rope major investors in. The real estate market's solid (at the moment) so that's in their favour too, they can always sell the houses if the loans fail. But in the back of any banker's mind is the reality that most of these loans are to people who, historically, no evidence to the contrary, have ALWAYS defaulted or disappeared or whatever. They have decades of proof. So what do they do? The truly savvy investors bet against themselves so they can recoup their investment if it goes south. And guess what, because they were selling these things over and over again (far exceeding the value of the original mortgages), sort of like the investment scheme in The Producers, they stand to make a hell of a lot MORE than their original buy-in if it fails. It's a win-win for them.

    Ethically and morally, it's evil. But legally? Probably ok. This is the problem with the lawsuits - what they did was not actually illegal, although there were disclosure issues, you know, not telling people of the risks or that they were betting against themselves. But the banks can turn around and say look at this thing, this CDO. It's full of mortgages to idiots and defaulters. It is chock full of the worst possible risk ever. Of COURSE we're going to bet against ourselves. Look around, everyone was doing it, not just us. We're just hedging our bets as a precaution...

    Of course a lot of people lost money, the market almost imploded, etc etc. So regulations have to change so that investments can't be structured this way and full disclosure has to be part of the picture. The market has to be protected from itself. P.T. Barnum said there's a sucker born every minute and two people to take advantage of him... and four others waiting to pick up the pieces when those two idiots get fucked for throwing good money after bad.
  8. kyfe

    kyfe TRIBE Member

    dude what they did was illegal.
    Fiduciary - Wikipedia, the free encyclopedia
  9. acheron

    acheron TRIBE Member

    Just watch what happens if this ever gets to the courts.
  10. acheron

    acheron TRIBE Member

    Who do they have a fiduciary duty to. Themselves or... Themselves? And the investors... The banks? They have fiduciary duty as well. Anyone who participated in these CDOs in any way is culpable. It'll end in some kind of settlement without a conviction.
  11. Bernnie Federko

    Bernnie Federko TRIBE Member

  12. Chris

    Chris Well-Known TRIBEr

    agree with acheron, there is no way this is going to go beyond where Goldman pays some sort of penalty and no admit to any wrong-doing.
  13. kyfe

    kyfe TRIBE Member

    agreed, but I think someones head is going to roll for this one, but it will be more of a sacrificial lamb than someone of authority.
  14. Chris

    Chris Well-Known TRIBEr

    Agree with kyfe, someone will be sacrificed.

    Hopefully the story gains more and more traction. This isnt over my a long shot, nor should it be, the complete lack of accountability, transparency in these instruments, and excess of greed......

    Im curious as to who else knew, what other companies were involved, and when, and how much was earned on the backs of joe and jane taxpayer, shareholder, etc.
  15. Chris

    Chris Well-Known TRIBEr

    saw this on another message board about this whole fiasco.

    "Do you promise to tell the whole truth, and noting but the truth?"
    Goldman response. "We have found the 'TRUTH' to generate poor returns.
    Lies are where the real money is made."
  16. Bass-Invader

    Bass-Invader TRIBE Member

    Well, it remains to be seen whether this was illegal or not. It was not the nature of the products, but the willful misrepresentation with a view to gain from the transaction. The government relies on:

  17. acheron

    acheron TRIBE Member

    What's the betting on whether Goldman Sachs will create a fund heavily weighted in brokerage stocks (including their own) and then short it?
  18. Bumbaclat

    Bumbaclat TRIBE Member

    I really enjoyed that weeks podcast. Excellent presentation of complicated information.
  19. Karim

    Karim TRIBE Member

    Despite this charge they are still a profitable company in almost all areas of their business. The fear sellers are driving down the price. If all they get is a slap on the wrist and a fine, this could be a nice stock to own for the rebound.
  20. Bass-Invader

    Bass-Invader TRIBE Member

    I like how the bears in the background are just chilling and enjoying the party.
  21. basketballjones

    basketballjones TRIBE Member

    wasnt there a few more pages to this thread, or has the deletor reared its head again
  22. Bernnie Federko

    Bernnie Federko TRIBE Member

    ^ not that I recall

    (Reuters) - Shares of Goldman Sachs Group Inc (GS.N) fell as much as 8.5 percent on Friday, the day after a source said that U.S. federal prosecutors in New York had begun investigating the company.

    Hot Stocks

    The reported criminal investigation also prompted at least two analysts to downgrade their ratings for Goldman. Bank of America Merrill Lynch analyst Guy Moszkowski called the reports "a concern even if no charges ultimately result."

    In addition, the yield spread over Treasuries of Goldman Sachs' 5.375 percent notes due in 2020 has widened to about 201 basis points in heavy volume, from 184 basis points late on Thursday, according to MarketAxess.

    The criminal investigation comes less than two weeks after Goldman was charged with civil fraud by the U.S. Securities and Exchange Commission. Earlier this week, Goldman Chief Executive Officer Lloyd Blankfein and other executives also faced cross-examinations from lawmakers at a Washington hearing into their behavior in trading mortgage-related products in 2007.

    Goldman, which is now facing one of the biggest crises in its 140-year history, is seeing its shares bear the brunt of the past two weeks' developments.

    "It's going to keep (Goldman stock) capped in terms of potential upside," said Walter Todd, a portfolio manager at Greenwood Capital. "You started to see it recover and then something else comes out.

    "The door was opened when the SEC announced their fraud charges," Todd said. "I think you're going to have things of this nature popping up for the foreseeable future for Goldman, but the criminal investigation obviously escalates it to the next level. ... It's going to be an ongoing overhang for these guys."

    Moszkowski downgraded Goldman to "neutral" from "buy" and lowered his price target for Goldman to $160, from $220. Analysts at S&P Equity Research downgraded the company to "sell" from "hold," and cut their price target for Goldman to $140 from $180.

    "It is very difficult to see the shares making further progress until the matter has been resolved," Moszkowski wrote in a research note.

    The cost to insure Goldman's debt also rose on Friday. Credit default swaps insuring Goldman's debt widened 32 basis points to 162.5 basis points, or $162,500 per year for five years to insure $10 million in debt, according to Markit Intraday.

    Goldman shares were down 8.2 percent at $147.08 in late morning trading on the New York Stock Exchange, off an earlier low at $146.59.
  23. WestsideWax

    WestsideWax TRIBE Promoter

    Why is the Ontario government enlisting the assistance of GS in negotiating the privatization of a large portion of the Province's (currently profitable) public assets?
  24. OutcastTO

    OutcastTO TRIBE Member

    Because McGuinty and the CEO of GS are not only members of the skulls, but it is also believed they have ancestral roots with the Illuminati?
  25. acheron

    acheron TRIBE Member

    because Goldman Sachs, for their faults, is still one of the largest, if not the largest, players in the market and they have deep experience in these sorts of negociations.

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