April 16, 2010
SEC Charges Goldman with Fraud in Structuring and Marketing CDO Tied to Subprime MortgagesThe 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.
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