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Dylan Ratigan does a great job explaining the con: GOLDMAN SACHS

Dylan Ratigan does a great job explaining the con: GOLDMAN SACHS


The SEC’s complaint charges Goldman Sachs and Tourre with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5. The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest, and financial penalties.

[youtube=http://www.youtube.com/watch?v=V4_v2kREE-o]

[youtube=http://www.youtube.com/watch?v=copoiSMihL8]

 

Many recall this post below:

Move over GOLDMAN SACHS…WE have a New Player to this Housing “Betting” Crisis…NASDAQ Presenting the Law Offices of David J. Stern, P.A. (“DJS”)

Posted in concealment, conspiracy, corruption, geithner, goldman sachs, hank paulson, john paulson, S.E.C., scamComments (0)

U.S. Accuses Goldman Sachs of Fraud: THE NEW YORK TIMES

U.S. Accuses Goldman Sachs of Fraud: THE NEW YORK TIMES


U.S. Accuses Goldman Sachs of Fraud

Brendan McDermid/Reuters The new Goldman Sachs global headquarters in Manhattan.
By LOUISE STORY and GRETCHEN MORGENSON “GOTTA LOVE THESE TWO FOR THEIR EXCELLENT WORK”
Published: April 16, 2010

Goldman Sachs, which emerged relatively unscathed from the financial crisis, was accused of securities fraud in a civil suit filed Friday by the Securities and Exchange Commission, which claims the bank created and sold a mortgage investment that was secretly devised to fail.

The move marks the first time that regulators have taken action against a Wall Street deal that helped investors capitalize on the collapse of the housing market. Goldman itself profited by betting against the very mortgage investments that it sold to its customers.

The suit also named Fabrice Tourre, a vice president at Goldman who helped create and sell the investment.

The instrument in the S.E.C. case, called Abacus 2007-AC1, was one of 25 deals that Goldman created so the bank and select clients could bet against the housing market. Those deals, which were the subject of an article in The New York Times in December, initially protected Goldman from losses when the mortgage market disintegrated and later yielded profits for the bank.

As the Abacus deals plunged in value, Goldman and certain hedge funds made money on their negative bets, while the Goldman clients who bought the $10.9 billion in investments lost billions of dollars.

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.

“The product was new and complex, but the deception and conflicts are old and simple,” Robert Khuzami, the director of the S.E.C.’s division of enforcement, said in a statement. “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.”

Mr. Paulson is not being named in the lawsuit. In the half-hour after the suit was announced, Goldman Sachs’s stock fell by more than 10 percent.

In recent months, Goldman has repeatedly defended its actions in the mortgage market, including its own bets against it. In a letter published last week in Goldman’s annual report, the bank rebutted criticism that it had created, and sold to its clients, mortgage-linked securities that it had little confidence in.

“We certainly did not know the future of the residential housing market in the first half of 2007 anymore than we can predict the future of markets today,” Goldman wrote. “We also did not know whether the value of the instruments we sold would increase or decrease.”

The letter continued: “Although Goldman Sachs held various positions in residential mortgage-related products in 2007, our short positions were not a ‘bet against our clients.’ ” Instead, the trades were used to hedge other trading positions, the bank said.

In a statement provided in December to The Times as it prepared the article on the Abacus deals, Goldman said that it had sold the instruments to sophisticated investors and that these securities “were popular with many investors prior to the financial crisis because they gave investors the ability to work with banks to design tailored securities which met their particular criteria, whether it be ratings, leverage or other aspects of the transaction.”

Goldman was one of many Wall Street firms that created complex mortgage securities — known as synthetic collateralized debt obligations — as the housing wave was cresting. At the time, traders like Mr. Paulson, as well as those within Goldman, were looking for ways to short the overheated market.

Such investments consisted of insurance-like policies written on mortgage bonds. If the mortgage market held up and those bonds did well, investors who bought Abacus notes would have made money from the insurance premiums paid by investors like Mr. Paulson, who were negative on housing and had bought insurance on mortgage bonds. Instead, defaults spread and the bonds plunged, generating billion of dollars in losses for Abacus investors and billions in profits for Mr. Paulson.

For months, S.E.C. officials have been examining mortgage bundles like Abacus that were created across Wall Street. The commission has been interviewing people who structured Goldman mortgage deals about Abacus and other, similar instruments. The S.E.C. advised Goldman that it was likely to face a civil suit in the matter, sending the bank what is known as a Wells notice.

Mr. Tourre was one of Goldman’s top workers running the Abacus deal, peddling the investment to investors across Europe. Raised in France, Mr. Tourre moved to the United States in 2000 to earn his master’s in operations at Stanford. The next year, he began working at Goldman, according to his profile in LinkedIn.

He rose to prominence working on the Abacus deals under a trader named Jonathan M. Egol. Now a managing director at Goldman, Mr. Egol is not being named in the S.E.C. suit.

Goldman structured the Abacus deals with a sharp eye on the credit ratings assigned to the mortgage bonds associated with the instrument, the S.E.C. said. In the Abacus deal in the S.E.C. complaint, Mr. Paulson pinpointed those mortgage bonds that he believed carried higher ratings than the underlying loans deserved. Goldman placed insurance on those bonds — called credit-default swaps — inside Abacus, allowing Mr. Paulson to short them while clients on the other side of the trade wagered that they would not fail.

But when Goldman sold shares in Abacus to investors, the bank and Mr. Tourre only disclosed the ratings of those bonds and did not disclose that Mr. Paulson was on other side, betting those ratings were wrong.

Mr. Tourre at one point complained to an investor who was buying shares in Abacus that he was having trouble persuading Moody’s to give the deal the rating he desired, according to the investor’s notes, which were provided to The Times by a colleague who asked for anonymity because he was not authorized to release them.

In seven of Goldman’s Abacus deals, the bank went to the American International Group for insurance on the bonds. Those deals have led to billions of dollars in losses at A.I.G., which was the subject of an $180 billion taxpayer rescue. The Abacus deal in the S.E.C. complaint was not one of them.

That deal was managed by ACA Management, a part of ACA Capital Holdings, which changed its name in 2008 to Manifold Capital Holdings.

Goldman at first intended for the deal to contain $2 billion of mortgage exposure, according to the deal’s marketing documents, which were given to The Times by an Abacus investor.

On the cover of that flip-book, it says that the mortgage bond portfolio would be “selected by ACA Management.”

In that flip-book, it says that Goldman may have long or short positions in the bonds. It does not mention Mr. Paulson or say that Goldman was in fact short.

The Abacus deals deteriorated rapidly when the housing market hit trouble. For instance, in the Abacus deal in the S.E.C. complaint, 84 percent of the mortgage bonds underlying it were downgraded by rating agencies just five months later, according to a UBS report.

It takes time for such mortgage investments to pay out for investors who short them, like Mr. Paulson. Each deal is structured differently, but generally, the bonds underlying the investment must deteriorate to a certain point before short-sellers get paid. By the end of 2007, Mr. Paulson’s credit hedge fund was up 590 percent.

Mr. Paulson’s firm, Paulson & Company, is paid a management fee and 20 percent of the annual profits that its funds generate, according to a Paulson investor document from late 2008 titled “Navigating Through the Crisis.”

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GATH' AROUND…Stocks Fall, Treasurys, Dollar Rise, On SEC Goldman Charges

GATH' AROUND…Stocks Fall, Treasurys, Dollar Rise, On SEC Goldman Charges


Lets not act surprised…GS is going to turn into Butta’ all the wealth created is/was all an illusion…I bet “oil” is next…watch!

This might be the key that opens up Pandora’s Little Big Box! “John Paulson”

APRIL 16, 2010, 11:26 A.M. ET

Stocks Fall, Treasurys, Dollar Rise, On SEC Goldman Charges

By Michael J. Casey Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Stocks fell and Treasurys rose as news of Securities and Exchange Commission charges against Goldman Sachs Group Inc. (GS) sparked a flight out of risky assets.

The SEC said Goldman Sachs failed to disclose to investors vital information about a synthetic collateralized debt obligation, or CDO, based on subprime mortgage-backed securities–in particular the role played by a major hedge fund that had bet against the CDO. Subprime CDOs were at the heart of the recent financial crisis.

In response, investors moved into safe haven assets and out of riskier securities, buying Treasurys and the dollar, while selling stocks and commodities.

“The revival of risk aversion has benefited traditional safe-haven assets, like the dollar and the Japanese yen,” said Omer Esiner, senior market analyst at Travelex Global Business Payments in Washington.

Noting that the complaint is focused on a specific incident, he said the broad flight out of risk appeared to be a “knee-jerk reaction.”

Golmdan stock was down 12.45% to $161.33 on the news. The Dow Jones Industrial Average was down 86 points at 11057, while the 10-year Treasury note was up 17/32 to yield 3.778%. Gold futures, which have tended to rise with commodities and other risk assets over the past year, were down 1.4%, according the most active June contract.

The euro plummeted to $1.3486 from $1.3577 late Thursday, according to EBS via CQG, while the dollar fell to Y92.11 from Y93.04.

“That word ‘fraud’ is the key. When you throw that word fraud in there, all bets are off then,” said Jay Suskind, senior vice president of Duncan-Williams.

-By Michael Casey; Dow Jones Newswires; 212-416-2209; michael.j.casey@dowjones.com

 (Bradley Davis and Kristina Peterson contributed to this report.)

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