California Real Estate Fraud Report

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SEC charges Goldman Sachs with fraud

The Securities and Exchange Commission (SEC) has filed a civil complaint against Goldman Sachs alleging that the financial giant worked with one of its key clients to create collateralized debt obligations (CDOs) consisting of subprime mortgage-backed securities. Goldman Sachs then sold the CDOs to investors knowing that the client was betting heavily against the very same product.

The SEC’s complaint says that Goldman Sachs vice-president Fabrice Tourre, who was personally charged in the complaint, put the plan into operation in 2007, bragging in an email to a friend that he was “the fabulous Fab standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!” Fabrice Tourre has since been promoted to executive director of Goldman Sachs International in London. Mr. Tourre also has a profile on LinkedIn.

John Paulson, the hedge fund manager of Paulson & Co. was involved in choosing which securities would be part of the portfolio, according to the SEC’s complaint, but neither he nor Paulson & Co. have been charged with any crime. The SEC also alleged that Paulson took a short position against its ABACUS 2007-AC1 CDO in a bet that its value would fall spectacularly.  Here is Paulson & Co.’s response to the SEC’s civil complaint.

More than $1 billion was lost by ABN Amro and IKB Deutsche Industriebank AG, two of the European banks that bought these toxic securities. According to the report in Yahoo News, John Paulson’s hedge fund ended up with the profits from those two banks’ losses.

Informed readers know that Goldman Sachs, which earned a staggering $4.79 billion in 4th quarter 2009, was one of the top recipients of corporate welfare at the largesse of taxpayers through the generosity of the Bush and Obama administrations. Rolling Stone writer Matt Taibbi, in his 2009 expose of Goldman Sachs, refers to the firm as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

And derivatives expert and Huffington Post blogger Janet Tavakoli, who also is the founder of Tavakoli Structured Finance, accuses Goldman Sachs of “malicious mischief” and of creating “bad securities”. Further, “the SEC itself has shirked its responsibilities in these matters for years” she said, adding that the SEC’s “hands have been forced by public voices” rather than its regulatory mandate to protect investors.

Read more on Yahoo and MSN. You can also read the SEC’s complaint against Goldman Sachs here.

This article was also published in by Monique Bryher.

© Copyright 2007-2018 Monique Bryher

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The information and notices contained on The California Real Estate Fraud Report are intended to summarize recent developments in real estate fraud, mortgage fraud, short sale fraud, REO fraud, appraisal fraud, loan modification scams, loan modification fraud and other real estate related crimes occurring in Los Angeles and California. The posts on this site are presented as general research and information and are expressly not intended, and should not be regarded, as legal advice. Much of the information on this site concerns allegations made in civil lawsuits and in criminal indictments. All persons are presumed innocent until convicted of a crime. Readers who have particular questions about real estate fraud, mortgage fraud and appraisal fraud matters or who believe they require legal counsel should seek the advice of an attorney.

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