Friday, April 16, 2010
The big news this afternoon is the SEC complaint filed in S.D.N.Y. raising serious allegations about Goldman Sachs in structuring and marketing a synthetic CDO that hinged on the performance of subprime residential mortgage-backed securities. According to the complaint, Goldman failed to disclose the role that a major hedge fund, Paulson & Co., played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO. The SEC alleges that Paulson & Co. paid Goldman $15 million to structure and market a transaction in which the fund could take short positions against mortgage securities chosen by Paulson & Co. The SEC alleges that Goldman VP Fabrice Tourre was principally responsible for the CDO known as ABACUS 2007-AC1. Investors are alleged to have lost more than $1 billion. The SEC is seeking injunctive relief, penalties and disgorgement of profits.