Why is the Federal Reserve forking over $220 million in bailout money to the wives of two Morgan Stanley bigwigs?© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.
Posted on 16 April 2011.
Why is the Federal Reserve forking over $220 million in bailout money to the wives of two Morgan Stanley bigwigs?© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.
Posted on 12 April 2011.
The Real Housewives of Wall Street
via Rolling Stone
America has two national budgets, one official, one unofficial. The official budget is public record and hotly debated: Money comes in as taxes and goes out as jet fighters, DEA agents, wheat subsidies and Medicare, plus pensions and bennies for that great untamed socialist menace called a unionized public-sector workforce that Republicans are always complaining about. According to popular legend, we’re broke and in so much debt that 40 years from now our granddaughters will still be hooking on weekends to pay the medical bills of this year’s retirees from the IRS, the SEC and the Department of Energy.
Posted on 05 January 2011.
One company embroiled in the nation’s property foreclosure crisis is not unprepared for a fight.
In Washington, D.C., Merscorp Inc. has retained several well-heeled lobbyists and invested hundreds of thousands of dollars in lobbying efforts since the start of the mortgage crisis and economic meltdown.
Merscorp Inc. is the parent company of Virginia-based Mortgage Electronic Registration Systems (MERS), which serves as an electronic registry for 67 million U.S. mortgages — more than 60 percent of the country’s total.
MERS was created in the 1990s by the mortgage banking industry to save them significant sums of cash by capitalizing on the digital revolution. The firm’s motto is “process loans, not paperwork.”
The ease of this streamlining process has brought trouble and detractors, however, especially in the face of the $12 trillion real estate bubble’s burst, and the company’s role in helping banks foreclose on properties, as the Washington Post recently reported.
“Several state courts have rejected attempts by MERS to act on behalf of banks seeking to foreclose on delinquent mortgages,” the Post reported last week. “And Congress is weighing legislation that would bar home loan giant Fannie Mae from buying any mortgage listed in MERS, potentially a death knell for the registry.”
Rolling Stone reporter Matt Taibbi recently summed up the company’s status this way: “In short, the mortgage industry considers MERS owner enough to foreclose on you, but not owner enough to be sued, or reasoned with, or even to provide basic customer service.”
In testimony before the House Financial Services Committee in November, Merscorp Chief Executive Officer R.K. Arnold maintained his firm did not profit from foreclosures or decide when to foreclose upon a property.
Posted on 10 November 2010.
The following is an article from the November 11, 2010 issue of Rolling Stone. This issue is available Friday on newsstands, as well online in Rolling Stone’s digital archive. Click here to subscribe.
The foreclosure lawyers down in Jacksonville had warned me, but I was skeptical. They told me the state of Florida had created a special super-high-speed housing court with a specific mandate to rubber-stamp the legally dicey foreclosures by corporate mortgage pushers like Deutsche Bank and JP Morgan Chase. This “rocket docket,” as it is called in town, is presided over by retired judges who seem to have no clue about the insanely complex financial instruments they are ruling on — securitized mortgages and labyrinthine derivative deals of a type that didn’t even exist when most of them were active members of the bench. Their stated mission isn’t to decide right and wrong, but to clear cases and blast human beings out of their homes with ultimate velocity. They certainly have no incentive to penetrate the profound criminal mysteries of the great American mortgage bubble of the 2000s, perhaps the most complex Ponzi scheme in human history — an epic mountain range of corporate fraud in which Wall Street megabanks conspired first to collect huge numbers of subprime mortgages, then to unload them on unsuspecting third parties like pensions, trade unions and insurance companies (and, ultimately, you and me, as taxpayers) in the guise of AAA-rated investments. Selling lead as gold, shit as Chanel No. 5, was the essence of the booming international fraud scheme that created most all of these now-failing home mortgages.
Posted on 25 April 2010.
Contributed by Philstockworld (Reporter)
// Sunday, April 25, 2010 7:59
Courtesy of John Lounsbury
Matt Taibbi has a feature article in The Guardian which parodies the Gordon Gecko “Greed is good” statement from the film “Wall Street”. He carries the subject forward to develop a picture of Ayn Rand Objectivism taking over the world.
This is an article that will make some readers scream in disgust at the position Matt espouses and others scream in disgust at the Randian world he rants against. He concludes the article:
This debate is going to be crystallised in the Goldman case. Much of America is going to reflexively insist that Goldman’s only crime was being smarter and better at making money than IKB and ABN-Amro, and that the intrusive, meddling government (in the American narrative, always the bad guy!) should get off Goldman’s Armani-clad back. Another side is going to argue that Goldman winning this case would be a rebuke to the whole idea of civilisation – which, after all, is really just a collective decision by all of us not to screw each other over even when we can. It’s an important moment in the history of modern global capitalism: whether or not to move forward into a world of greed with out limits.
Taibbi’s conclusion is similar to my repeated belief that it is important for the SEC vs. Goldman Sachs case to go to trial so the convoluted financial processes involved can be presented and reviewed by both plaintiff and defendant. The nature of the machinations must be understood by the masses and the limits of current law must be defined in order to have a rational debate. We need a complete expose so we can make logical decisions about where the financial system should go from here.
Absent the trial or some other process of discovery we risk being doomed to divide into three camps:
We need a citizenry that understands what has happened to a sufficient extent to support some rational middle ground between the law of the jungle and all animals in zoo cages.
Posted on 20 April 2010.
Posted Apr 20, 2010 11:59 AM CDT
By Martha Neil
The Law Offices of David J. Stern has only about 15 attorneys, according to legal directories.
However, it’s the biggest filer of mortgage foreclosure suits in Florida, reports the Tampa Tribune. Aided by a back office that dwarfs the law firm, with a staff of nearly 1,000, the Miami area firm files some 5,800 foreclosure actions monthly.
The back-office operation, DJSP Enterprises, is publicly traded and hence must file financial reports with the Securities and Exchange Commission. It netted almost $45 million in 2009 on a little over $260 million in gross revenue that year. The mortgage meltdown of recent years apparently has been good to the company: In 2006, it earned a profit of $8.6 million on $40.4 million in revenue.
Stern, who is the company’s chairman and chief executive officer, could not be reached for comment, the newspaper says.
His law firm has been in the news lately, after one Florida judge dismissed a foreclosure case due to what he described as a “fraudulently backdated” mortgage document, and another said, in a hearing earlier this month concerning another of the Stern firm’s foreclosure cases, “I don’t have any confidence that any of the documents the court’s receiving on these mass foreclosures are valid.”
ABAJournal.com: “Judge Dismisses Mortgage Foreclosure Over ‘Fraudulently Backdated’ Doc”
Posted on 20 April 2010.
I think it is donzo for GS. They might try to get away with it here but UK…is another story. There is no White House.
Source: Associated Press
LONDON (AP) — Britain’s financial regulator launched a full-blown investigation into Goldman Sachs International on Tuesday after U.S. authorities filed civil fraud charges against its parent bank.
The announcement from the Financial Services Authority follows pressure for the probe from Prime Minister Gordon Brown, who expressed shock over the weekend at Goldman’s “moral bankruptcy.”
The British regulator said it would liaise closely with the U.S. Securities and Exchange Commission, which alleges that the bank sold risky mortgage-based investments without telling buyers that the securities were crafted in part by a billionaire hedge fund manager who was betting on them to fail.
The London-headquartered Goldman Sachs International, a principal subsidiary of Goldman Sachs Group Inc., said that “the SEC’s charges are completely unfounded in law and fact.” It said it looks “forward to cooperating with the FSA.”
British interest in the case is likely to focus on the Royal Bank of Scotland, which paid $841 million to Goldman Sachs in 2007 to unwind its position in a fund acquired in the takeover of Dutch Bank ABN Amro, according to the complaint filed in the United States.
The possibility that RBS might be able to recoup some money from Goldman Sachs helped boost the government-controlled bank’s shares, which were up 2.8 percent at midday.
The government holds an 84 percent stake in the bank, which nearly collapsed in large part because of its leadership of the consortium which took over the Dutch bank.
Fabrice Tourre, the Goldman Sachs executive named in the SEC lawsuit filed on Friday was moved to the bank’s London office at the end of 2008.
Analysts warn that damage from the case could hit other big banks as well, as the Goldman lawsuit puts the spotlight on the sector’s activities in the wake of the financial crisis.
Brown’s anger was fueled by reports over the weekend that Goldman Sachs still intended to pay out 3.5 billion pounds ($5.4 billion) in bonuses.
The British leader, who is facing a tough general election on May 6, said that the activities of banks “are still an issue.”
“They are a risk to the economy,” he said. “We have got to make sure they behave in a proper way.”
The opposition Conservative and Liberal Democrat parties, meanwhile, called on Brown to suspend Goldman from government work until the investigations are completed.
AP reporter Robert Barr in London contributed to this statement.
Posted on 19 April 2010.
By EAMON JAVERS & MIKE ALLEN | 4/19/10 8:14 PM EDT
Updated: 4/19/10 10:03 PM by POLITICO
Goldman Sachs is launching an aggressive response to its political and legal challenges with an unlikely ally at its side — President Barack Obama’s former White House counsel, Gregory Craig.
The beleaguered Wall Street bank hired Craig — now in private practice at Skadden, Arps, Slate, Meagher & Flom — in recent weeks to help in navigate the halls of power in Washington, a source familiar with the firm told POLITICO.
“He is clearly an attorney of eminence and has a deep understanding of the legal process and the world of Washington,” the source said. “And those are important worlds for everybody in finance right now.”
They’re particularly important for Goldman.
On Friday, the SEC charged the firm with securities fraud in a convoluted subprime mortgage deal that took place before the collapse of the housing market. Next week, Goldman Sachs CEO Lloyd Blankfein will face questions from the Senate Permanent Subcommittee on Investigations, which is looking into the causes of the housing meltdown, the source said.
In Craig, Goldman Sachs will have help from a lawyer with deep connections in Democratic circles.
Craig served as White House counsel during the first year of Obama’s presidency, but is seen as having been pushed out for his role in advocating a strict timeline for the closing of the U.S. detention facility at Guantanamo Bay. His departure frustrated many liberal Obama supporters who saw Craig as a strong advocate for undoing some of what they saw as the worst excesses of the Bush era.
But the source familiar with Goldman’s operations said Craig wasn’t hired just because he’s well-connected.
“It’s about advice and process,” the source said. “People will always leap to the conclusion that it’s about somebody’s Rolodex.”
Skadden declined to comment on Craig’s role with Goldman.
“A former White House employee cannot appear before any unit of the Executive Office of the President on behalf of any client for 2 years—one year under federal law and another year under the pledge pursuant to the January 2009 ethics E0,” said a White House official.
The official also said that the White House had no contact with the SEC on the Goldman Sachs case. “The SEC by law is an independent agency that does not coordinate with the White House any part of their enforcement actions.”
Whatever the reason for his hiring, Craig will presumably be a key player in the intricate counterattack Goldman Sachs officials in Washington and Manhattan improvised during the weekend — a plan that took clearer shape Monday as Britain and Germany announced that they might conduct their own investigations of the firm.
For three weeks, Goldman had planned to hold a conference call Tuesday to unveil its first-quarter earnings for shareholders. Shifting into campaign mode after the SEC’s surprise fraud filing, Goldman has moved the call up from 11 a.m. to 8 a.m. to try to get ahead of the day’s buzz. In an unusual addition, the firm’s chief counsel will be on the line to answer questions about the case, and Goldman is inviting policymakers and clients to listen to the earnings call themselves rather than rely on news reports.
Industry officials said the conference call — which will include, as originally planned, Chief Financial Officer David Viniar — will amount to a public unveiling of Goldman’s crisis strategy.
But the linchpin of that plan is already clear: An attempt to discredit the Securities and Exchange Commission by painting the case as tainted by politics because it was announced just as President Barack Obama was ramping up his push for financial regulatory reform, including a planned trip to New York on Thursday.
“The charges were brought in a manner calculated to achieve maximum impact at point of penetration,” a Goldman executive said.
Among the points Greg Palm, co-general counsel, plans to emphasize on the call is “how out of the ordinary the process was with the SEC,” the executive said. The SEC usually gives firms a chance to settle such charges before they are made public. Goldman executives say they had no such chance,and learned about the filing while watching CNBC.
With a monstrous problem and mammoth resources, the iconic firm is paying for advice from a huge array of outside consultants, including such top Washington advisers as Ken Duberstein and Jack Martin, founder of Public Strategies.
The basic plan: Make a tough, factual case without coming off as arrogant or combative and without souring the firm’s image even further.
Partly because of the firm’s belief that it has become an easy target, no Goldman officials have appeared on television since the SEC announced its case.
The firm thinks it can be more effective if others make its case. On CNBC’s “Squawk Box” on Monday, Andrew Ross Sorkin of The New York Times, who gets special attention from Goldman spinners, raised questions about the substance of the SEC’s case. Shortly thereafter, Sen. Judd Gregg of New Hampshire, the top Republican on the Senate Budget Committee, said he is “a little interested in the timing” of the case.
Reflecting a high-stakes balance for the unpopular investment bank, Goldman plans to stop short of a frontal attack. Instead, it is raising questions and feeding ammunition to allies.
“We don’t want to come across as being arrogant and above it all,” said a Goldman executive who insisted on anonymity. “The SEC is the major regulator of several of our businesses. Being at war with them is not the goal.”
Therefore, an official said, a key Goldman message in the days ahead will be, “We’re not against regulation. We’re for regulation. We partner with regulators.”
Goldman said its most important audience is its client base, from CEOs all over the world to pension-fund managers to entrepreneurs who use the firm’s private wealth-management services. The firm sent its staff two pages of talking points giving basic facts — and the official line — about the SEC case: “Goldman Sachs Lost Money on the Transaction … Objective Disclosure Was Provided.”
The less official message, according to one executive: “Don’t believe everything you read in the complaint. Don’t believe everything you read in the press.”
The official said clients have been sympathetic.
Other audiences include the news media and governments around the world, with Goldman reaching out Tuesday to politicians in Europe, Japan, the U.S. and everywhere in between.
Goldman pays extraordinary attention to its alumni network because so many of its former officials are in visible, powerful positions. An official said the firm tries “to empower them with information,” so that when they’re put on the spot about the Goldman case, they can say, “I’m not there, but let me tell you a few things I’ve been told.”
Posted on 19 April 2010.
by Bill Sardi
Recently by Bill Sardi: Preparations Being Made To Move Fort Knox Gold Into Your Bank Account
What just happened to Wall Street, with the announcement that the Securities Exchange Commission has filed fraud charges against Goldman Sachs Group, Inc., is so damning that its impact had to be blunted by its late Friday afternoon release. It’s what government does when it doesn’t want the stock market to plunge. But government DOES want to play up to the public’s infuriation over continuing revelations of greed and fraud on Wall Street.
A Monday morning release of this story might have sent the entire stock market into a crash (Goldman Sachs Group Inc, stock is down 23.57 points, erasing ~$12 billion of market capitalization), and that’s because there are likely more fraudulent billion-dollar investments to be revealed.
The American public needs to first grasp a broader view of this event. The Administration in Washington DC, heading for an election in November that will surely be fueled with voter outrage, has decided to strike a seeming blow to Wall Street to strengthen its hand in pushing for financial reform. Yet it is so odd that politicians were the ones who allowed all this to happen (more on this below). Does anyone have an explanation why the SEC has only now decided to file charges involving a 2007 billion-dollar investment? Or why the investor who most benefited financially and who assembled this mortgage-backed investment, John Paulson, has yet to be charged with any wrongdoing?
The smoking gun: an e-mail
|John Paulson, the billionaire|
Another piece of the intrigue here is that the primary provider of evidence in the case is a star Goldman Sachs trader, a Frenchman by birth, who has suddenly left the U.S. for Europe as this story hits the news outlets. Fabrice Tourre, a GS vice president, wrote an email in 2007 that is the smoking gun in this case. Did he leave the U.S. in fear for his life?
Mr. Tourre’s 2007 email, which said “the whole building is about to collapse now,” shortly before the bonds were sold, and which said he would be the only potential survivor, provides foreknowledge of the billion-dollar investment that was sure to fail. Tourre was “principally responsible” for piecing together this novel and new type of investment at GS. He was the point man for Paulson.
When Tourre produced a 65-page “flip book” that contained details of the billion-dollar investment, to be provided to potential investors, this provided the evidence that SEC needed for its case.
|Fabrice Tourre, 31-year-old Goldman Sachs vice president, who is reported to have fled the country with the announcement that a 2007 email he wrote is the “smoking gun” in the SECs case against GS.|
Don’t get the false impression that Mr. Tourre is a whistleblower here. The SEC alleges Mr. Tourre misled investors about Paulson’s role, saying Paulson had invested millions of dollars in hopes the packaged mortgage bonds would rise in value. Of course, Mr. Tourre is not the target of the SEC complaint, Goldman Sachs is. Its senior management had full knowledge of this deal. From 2004 to 2007, Goldman Sachs had arranged about two dozen similar deals.
Nor should anyone get the false notion that Paulson let others do all his bidding. He was actively raising funds and selling investment groups on this kind of instrument for some time, going back to 2006. Paulson wanted to invent the invincible wager.
An article in The Wall Street Journal documents that a senior banker at Bear Stearns Companies turned down this trade, questioning the propriety of selling deals to investors that a bearish client had assembled. (Bear market traders bet that an investment will fall in value, while bull-market traders bet than an investment will rise in value.)
Throw the book at them
Believe it or not, an entire book was written of this now infamous investment before the SEC took action.
Of interest is Greg Zuckerman, The Wall Street Journal’s senior reporter in this case, who wrote The Greatest Trade Ever, about this trade and others like it, long before the SEC took action. The jacket on this book says: “The behind-the-scenes story of how John Paulson defied Wall Street and made financial history.” The book, published in November of 2009, hardly made ripples on Wall Street or in the financial news press. The SEC was sitting on all this information for over two years and did nothing. It was waiting for the right political moment to strike.
Zuckerman’s book outlines how John Paulson assembled risky mortgage investments with another party, Goldman Sachs, investments that were sure to fail, and then bet against them. Goldman Sachs used its reputation to promote the packaged mortgage investment to an overseas investor without revealing it was in cahoots with Paulson. In fact, the overseas bank involved specifically said it would not proceed if the packaged mortgages had been assembled by Paulson.
Paulson made a killing – a billion dollars, and Goldman Sachs made millions assembling the deal from both sides. Paulson’s defense is that he made no misrepresentations, only Goldman Sachs did, but what of the ethics of this deal?
Yves Smith, author of Naked Capitalism, and head of Aurora Advisors, a management consulting group, and the author of the new book, Econned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism, calls the investment that John Paulson sponsored a “Trojan horse for Mr. Paulson to take a short position, betting against the very same investment he was creating, but his intent was not disclosed…. at the expense of investors who had been kept in the dark and would almost certainly have turned down the deal if they had had the full picture.”
Goldman Sachs living up to its now infamous reputation
It’s obvious now that Goldman Sachs will be the pin cushion for the Administration’s attempt to regain public credibility before the November election. Goldman Sachs is the villain, and it is doing a good job of playing this role.
Just prior to the revelations about the alleged Paulson/Goldman Sachs scandal, the SEC launched other charges against a Goldman Sachs director. Various news sources reported that Rajat Gupta of GS is being investigated on suspicion that he provided inside information to the Galleon Group, a hedge fund founded by Raj Rajaratnam that has now become the biggest insider-trading probe in many years. So the SEC could mire Goldman Sachs with even more allegations in an effort to bring the billion-dollar company to its knees.
This publicly-staged legal action resembles that of President Bill Clinton’s 1995 assault against the tobacco companies, which was launched under the guise of a threat to public health, but really had a political agenda – that of taking away millions of dollars of campaign funds that the tobacco industry was donating to the Republican Party at the time.
If you are as confused as everyone else what the SEC is fussing about, you might click here to take a peek at a graphic created by The Wall Street Journal which visually displays how the deal between John Paulson and Goldman Sachs was prearranged and marketed.
Of course, GS sees nothing wrong with this trade, which should ignite even further public outrage. GS needs a good public relations man at the moment as it digs an even deeper hole every time it attempts to defend its own actions. (Recall GS’ CEO Lloyd Blankfein who recently said he’s “doing God’s work.”)
Congress opened the door
To return to the government’s culpability in this case, the Commodities Futures Modernization Act which Congress passed a decade ago, opened the door for trades like John Paulson’s. This legislation eliminated the long-standing rule that derivatives bets made outside regulated exchanges are legally enforceable only if one the parties involved in the bet were hedging against a pre-existing risk. Prior regulations said the only people who can bet against an investment actually have to own shares in it. Here is Paulson betting against an investment he had no ownership in.
The Commodities Futures Modernization Act is akin to allowing unscrupulous investors to buy fire insurance on other people’s houses, says Lynn A. Stout, Paul Hastings Professor of corporate and securities law at UCLA. A rise in arson would surely occur to collect on the investment.
Or like Rick Edelson, an online blogger speaking out in the New York Times, says: “Like the arsonist who buys insurance on another man’s house, Goldman and Paulson did everything they could to burn down the American economy, because it was only by destroying others’ wealth that they could maximize their own profit.”
Good God, do these men see in their greed they have scuttled the American economy, as well as faith in Wall Street investments that fund most pension plans?
When Paulson made billions, Wall Street was not quick to condemn. He got away with it, and that was to be applauded. Some investment bloggers said “well done.” Another said Paulson is “an investing stud. He is to be hailed for his moxie and superior forecasting.”
Other defenders of Wall Street claim Paulson didn’t create a real estate market with collapsing home values. But to package non-performing mortgages and then bet against them is like a rigged horse race.
Scripting for a thrilling end
For sure, the Administration in Washington DC will be portrayed in coming months as the hero, rescuing the public from the blood-suckers on Wall Street. Be it government to save us all from problems it created and then pin a badge of honor on itself. The current and former administrations in Washington DC are, and have been, so tightly controlled and managed by Wall Street, even with its ex-CEOs strategically implanted within the Executive Branch, as to call all alleged reforms and sanctions into question. These are just for show.
Goldman Sachs and its billions will face off against the might of US prosecutors with the President’s credibility on the line. Will a publicized trial be showcased on TV? It could become the high drama that the government wants to keep before the public’s eyes, all the way up to the November election.
Will Paulson squirm out of any legal consequences in the same manner as O.J. Simpson when he was asked to put an ill-fitting glove on his hand in a televised hearing? Will the President be able to control himself and not chime in like he did when he said Cambridge, Massachusetts police officers “acted stupidly” when they arrested a renowned black scholar at his home?
Goldman Sachs knows it has to make the President look good or there will be unending SEC prosecution. The public wants to know whose side is the President is on, the financial titans on Wall Street or the unemployed on Main Street? It will be scripted from the beginning.
And now a final question – will Goldman Sachs be the fall guy in exchange for future favors from the government? If fines are handed out and nobody goes to jail, you will know this was likely preplanned. Will Fabrice Tourre serve as the scapegoat? He’s sure to stay outside the country for his own good. Don’t be so naïve as to not believe much of what you see happening is being staged. That’s how politics works. It’s all about political advantage, not law and order, not right and wrong.
April 19, 2010
Bill Sardi [send him mail] is a frequent writer on health and political topics. His health writings can be found at www.naturalhealthlibrarian.com. He is the author of You Don’t Have To Be Afraid Of Cancer Anymore. His latest book is Downsizing Your Body.
Copyright © 2010 Bill Sardi Word of Knowledge Agency, San Dimas, California. This article has been written exclusively for www.LewRockwell.com and other parties who wish to refer to it should link rather than post at other URLs.
Posted on 19 April 2010.
Anytime you have the word “FRAUD” involved in an on-going investigation, It makes you wonder when corps go at it together even more…click the links below to see what I mean.
Posted on 18 April 2010.
This is going to unleash a domino effect! Come one, Come all! Anyone buying these CDO’s from these fraudsters need to get examined!
Interested to see their stock this week??
April 17 (Bloomberg) — Merrill Lynch & Co. engaged in the same investor fraud that the U.S. Securities and Exchange Commission accused Goldman Sachs Group Inc. of committing, according to a bank that sued the firm in New York last year.
Cooperatieve Centrale Raiffeisen-Boerenleenbank BA, known as Rabobank, claims Merrill, now a unit of Bank of America Corp., failed to tell it a key fact in advising on a synthetic collateralized debt obligation. Omitted was Merrill’s relationship with another client betting against the investment, which resulted in a loss of $45 million, Rabobank claims.
Merrill’s handling of the CDO, a security tied to the performance of subprime residential mortgage-backed securities, mirrors Goldman Sachs conduct that the SEC details in the civil complaint the agency filed yesterday. It claimed Goldman omitted the same key fact about a financial product tied to subprime mortgages as the U.S. housing market was starting to falter.
“This is the tip of the iceberg in regard to Goldman Sachs and certain other banks who were stacking the deck against CDO investors,” said Jon Pickhardt, an attorney with Quinn Emanuel Urquhart Oliver & Hedges, who is representing Netherlands-based Rabobank.
“The two matters are unrelated and the claims today are not only unfounded but weren’t included in the Rabobank lawsuit filed nearly a year ago,” Bill Halldin, a Merrill spokesman, said yesterday of the Dutch bank’s claims.
Kenneth Lench, head of the SEC’s Structured and New Products unit, said yesterday that the agency “continues to investigate the practices of investment banks and others involved in the securitization of complex financial products tied to the U.S. housing market as it was beginning to show signs of distress.”
Failed to Disclose
In its complaint, the SEC said New York-based Goldman Sachs, which had a record $13.4 billion profit last year, failed to disclose to investors that hedge fund Paulson & Co. was betting against the CDO, known as Abacus, and influenced the selection of securities for the portfolio. Paulson, which oversees $32 billion and didn’t market the CDO, wasn’t accused of wrongdoing by the SEC.
Goldman Sachs, the most profitable securities firm in Wall Street history, created and sold CDOs tied to subprime mortgages in early 2007, as the U.S. housing market faltered, without disclosing that Paulson helped pick the underlying securities and bet against them, the SEC said in a statement yesterday.
The SEC allegations are “unfounded in law and fact, and we will vigorously contest them,” Goldman said in a statement.
Merrill Lynch’s arrangement involved Magnetar, a hedge fund that bet against a CDO known as Norma, Rabobank claimed.
Effort to Replicate
“When one major firm becomes aware of the creative instrument of others, there is historically an effort to replicate them,” said Jacob Frenkel, a former SEC lawyer now in private practice in Potomac, Maryland.
SEC spokesman John Heine declined to comment on whether it is investigating Merrill’s actions.
Norma’s largest investor was investment bank Cohen & Co, with more than $100 million in notes, according to Rabobank’s complaint.
Merrill loaded the Norma CDO with bad assets, Rabobank claims. Rabobank seeks $45 million in damages, according to a complaint filed in state court in June 2009. Rabobank initially provided a secured loan of almost $60 million to Merrill, according to its complaint.
Merrill countered in court papers that Rabobank was aware of the risks, which were disclosed in the transaction documents. The bank should have been responsible for conducting its own due diligence, and shouldn’t have relied on Merrill, it said in a court filing last year seeking to dismiss the case.
Steve Lipin, an outside spokesman for Magnetar, didn’t immediately comment.
The case is Cooperatieve Centrale Raiffeisen- Boerenleenbank, B.A. v. Merrill Lynch & Co, 09-601832, New York State Supreme Court (New York County).
Last Updated: April 16, 2010 23:03 EDT
Posted on 17 April 2010.
The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.
TYX91101 Taibbi’s excellent articles alone are worth the price of the magazine. There have been several. He’s doing a commendable? job of putting Wall Street monkey business into the public consciousness. You never get that kind of reporting on CNBC. Great work Matt! 6 hours ago
overseachininadoll Those who greatly benefited from the? crash must hand back the money. (Paulson company) 14 hours ago
Relugus Alot more than the sycophantic financial journalists who kiss Wall Street’s ass.? Wall Street has been screwing people, stealing taxpayers money, stealing wealth from the people, for decades. People are slowly waking up to what Wall Street is, a bunch of criminals and gangsters. 18 hours ago