SEC Charges Goldman Sachs With Fraud On Subprime Mortgages

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SEC Charges Goldman Sachs With Fraud On Subprime Mortgages

http://www.benzinga.com/markets/company-news/227928/sec-charges-goldman-...

The SEC has charged Goldman Sachs (NYSE: GS) with fraud in relation to subprime mortgages. The SEC filing says that "the Securities and Exchange Commission today charged Goldman Sachs & Co. and one of its vice-presidents for defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter."

"The SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO."

The filing continues: "The product was new and complex but the deception and conflicts are old and simple," said Robert Khuzami, Director of the Division of Enforcement. "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."

"The SEC alleges that one of the world's largest hedge funds, Paulson & Co., paid Goldman Sachs to structure a transaction in which Paulson & Co. could take short positions against mortgage securities chosen by Paulson & Co. based on a belief that the securities would experience credit events."

This appears to be a huge story, as Goldman (GS) has been called out for their activity during the financial crisis by a number of different sources. This stock is a SELL. Where there is smoke there is fire. Right now it is impossible to quantify where this story could go and what the potential consequences are. Currently, the shares have lost 10% to $165.85. This development may allow investors to pick up some unreasonably cheap GS shares, but now is not the time to step in. The reporting on CNBC is suggesting that Goldman's conduct was unethical to say the least.

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Re: SEC Charges Goldman Sachs With Fraud On Subprime ...

I'll bet nothing comes of it.

They'll find a few scapegoats and then its business as usual.

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Re: SEC Charges Goldman Sachs With Fraud On Subprime ...
Johnny Oxygen wrote:

I'll bet nothing comes of it.

They'll find a few scapegoats and then its business as usual.

 

Bingo. 

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Re: SEC Charges Goldman Sachs With Fraud On Subprime ...

I'll believe it when I see the perp walks.

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Re: SEC Charges Goldman Sachs With Fraud On Subprime ...

I mean do you think the SEC didn't already know all of this years ago?

The only reason its taken so long to come out is so that Goldman and the SEC had time to get their story straight and position themselves advantageously.

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Re: SEC Charges Goldman Sachs With Fraud On Subprime ...

I just heard on CNBC(heerleader) that Obama is having a meeting with some advisory committee on regulation this afternoon. Coincidence?

V's picture
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Re: SEC Charges Goldman Sachs With Fraud On Subprime ...

Great Kabuki Theater.

I think another building 7 will get blown up. LOL

V

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Re: SEC Charges Goldman Sachs With Fraud On Subprime ...
Johnny Oxygen wrote:

I mean do you think the SEC didn't already know all of this years ago?

The only reason its taken so long to come out is so that Goldman and the SEC had time to get their story straight and position themselves advantageously.

 

Agree 100%

They could have started filing charges on these sorts of things years ago.  Total Kabuki theater as usual.

What could make this interesting is if some whistleblowers start coming out of the woodwork and really blow a lid off things. 

 

 

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Re: SEC Charges Goldman Sachs With Fraud On Subprime ...

 Either the SEC diligently pursues goldman for billions or the accept a 200 million as a settlement. Based on the past the SEC will probably settle.

If the gov was intent on truly prosecuting goldman a nasty lawsuit would have been brought last year when GS was weak. How convenient that the suit is brought when GS is back on its feet making billions per quarter.

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Re: SEC Charges Goldman Sachs With Fraud On Subprime ...
joemanc wrote:

I just heard on CNBC(heerleader) that Obama is having a meeting with some advisory committee on regulation this afternoon. Coincidence?

I'm sure the release was timed to help push financial reform through and pre-empt republicans from making some bs argument about how it will hurt the banks. Although the reform is still going to be watered down and won't really solve any problems.

Speaking of CNBC, I can't wait to see how Jimmy Cramer side steps this direct blow to the bank he loves to defend.

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Re: SEC Charges Goldman Sachs With Fraud On Subprime ...
Farmer Brown wrote:

What could make this interesting is if some whistleblowers start coming out of the woodwork and really blow a lid off things. 

After reading this yesterday, I doubt whistleblowers will want to speak anymore:

http://www.peakprosperity.com/forum/jailed-ubs-whistleblower-makes-tax-d...

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Re: SEC Charges Goldman Sachs With Fraud On Subprime ...

Goldman Fallout May Be Short-Lived: Pros http://www.cnbc.com/id/36598430

Stunning security fraud charges against Wall Street behemoth Goldman Sachs are likely to roil the markets in the short term but unlikely to have longer-lasting effects, experts said.

Though stocks dropped sharply and Goldman

[GS  163.0099    -21.2601  (-11.54%)   ]

in particular surrendered well over 10 percent in share price, the reaction on trading floors and from portfolio managers was that investors would get over the shock in short order.

"Everything we're dealing with happened a couple of years ago," said Dave Lutz, managing director of trading for Stifel Nicolaus in Baltimore. "Ultimately, once this noise has washed out, it's going to translate into one heck of a buying opportunity."

Authorities charged that Goldman, arguably the least hard-hit of major firms when the subprime industry collapsed, packaged mortgages that were secretly designed to fail. Goldman used such short-selling techniques to protect itself against the fallout from toxic mortgages.

Goldman has said it will vigorously defend itself against the charges.

Anton Schutz, portfolio manager at Burnham Financial Services, called the investigation into Goldman "a witch hunt" and politically expedient at a time when Main Street investors are increasingly suspicious of Wall Street business practices.

The prevailing sentiment was that the damage to Goldman and the financial markets would only provide opportunity.

The negative effect for Goldman Sachs will be "significant," but will be a "short-term problem" for the company, said Dick Bove, an analyst for Rochdale Securities. "Whenever the SEC issues these type of charges against a company, there's generally a long, drawn-out legal battle that will change the company's procedures. But it will be a short-term problem. For the long term, it will pass," Bove said.

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Re: SEC Charges Goldman Sachs With Fraud On Subprime ...

This is an interesting take on the story, and I'm inclined to believe it:

Quote:

Think about the timing of this. It comes just as I have been talking about a “triggering event” that will take the blame for turning the markets. This suite was reported AFTER the open on OPTIONS EXPIRATION day. Why now? My suspicious mind says that it was timed to allow the options sellers and contract speculators to walk away and to instill maximum damage on the retail buyers of the ALL TIME RECORD number of option call buyers who were in the market just yesterday.

Markets almost always turn on such sentiment extremes, but I know that Goldman controls the government and absolutely is in control of the S.E.C. too! It’s almost a joke to me that they would turn the markets by allowing the S.E.C. to bring suit against themselves. And I’m willing to bet the majority of people will believe there’s no way they would do that. Want to bet?

Watch future events unfold, I can almost guarantee that there will be fines that are later mitigated, that a few people may take a fall, but nothing real or meaningful will come of it other than an opportunity to profit on the short side after running the market up to bubble extremes. It’s a nice game to play when you control all the pieces on the board. Meanwhile the people of the world are simply played as fools and pawns. How’s that feel, were you long the market?

How many times before people learn that what’s most important is not WHAT backs your money, but WHO is in control. America gets what it deserves, karma’s a bitch and it seems to be going around.

Not an hour before the release of this I was talking about bubbles and triggering events that take the blame. Take a look at the 30 day, 30 minute chart of Goldman Sachs. All parabolic profits of the past month GONE in an instant.

Full report - http://economicedge.blogspot.com/2010/04/breaking-sec-sues-goldman-sachs-for.html

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Re: SEC Charges Goldman Sachs With Fraud On Subprime ...

GS probably just planted this story so that they can profit from it. This year long rally has just been a series of short squeezes, and this news just created the opportunity for another squeeze.

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Re: SEC Charges Goldman Sachs With Fraud On Subprime ...

'Fraud on the Street?: The Case Against Goldman Sachs,' Special Report with Erin Burnett and Simon Hobbs, Tonight 7pm ET

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Re: SEC Charges Goldman Sachs With Fraud On Subprime ...

Jim cramer: Of course were going to have to had a kangaroo court. What a joke that guy is.

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Re: SEC Charges Goldman Sachs With Fraud On Subprime ...

IG Report: SEC Was Aware in '97 Stanford Likely Running Ponzi Scheme; SEC Missed Many Chances to Probe Stanford (story developing)

Boy the SEC is on top of everything today LOL.

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Re: SEC Charges Goldman Sachs With Fraud On Subprime ...

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Re: SEC Charges Goldman Sachs With Fraud On Subprime ...

Goldman Sachs will shrug, do a big "whatever" and then dig up some muck on whoever is in charge of the SEC.

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Re: SEC Charges Goldman Sachs With Fraud On Subprime ...
bearmarkettrader wrote:

Either the SEC diligently pursues goldman for billions or the accept a 200 million as a settlement. Based on the past the SEC will probably settle.

If the gov was intent on truly prosecuting goldman a nasty lawsuit would have been brought last year when GS was weak. How convenient that the suit is brought when GS is back on its feet making billions per quarter.

I agree with bearmarkettrader and others; I'll believe it when I see it.  

The thought that comes to mind is a "controlled burn".  Per Wikipedia:

 "Controlled or prescribed burning, also known as hazard reduction burning ...controlled fire can be a tool ... Hazard reduction or controlled burning is conducted during the cooler months to reduce fuel buildup and decrease the likelihood of serious hotter fires.[1]"

It also has the added benefit of putting our puppeticians on the "right side" of the debate, aligning them with public outrage and against big banks, potentially giving them a much-needed boost in the public's perception of them.

I would love GS prosecution to be true in a real and meaningful sense, but I am just too jaded anymore to believe it until I see it.  More like slap their hands after the fact (when lower risk), defuse public anger by "punishing" them, and give their politicians a boost in public opinion polls.

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Re: SEC Charges Goldman Sachs With Fraud On Subprime ...

Here is what is going to happen,

There will be an investigation. It will drag on into summer and fall. Baseball season and vacations for people who still have jobs will distract the sheeple. Then football season and kids going back to school will just about guarantee that no one will be paying any attention by mid fall.

If it goes beyond that, the holidays will just about put it to bed. The media (soon to be medium) will gradually move the story out of public view.

This will largely be accomplished by stories about Tiger, Oprah, Paris Hilton, Lindsey Lohan etc. It will culminate in a demand to exhume the body of Michael Jackson. A new autopsy will reveal he was actually not human but an alien.

Of course I could be wrong maybe it will be an outbreak of mad cow disease, a killer flu worse than anything we have seen to date, or I really feel we are due for another "terrorist" attack. We may be the terrorists attacking Iran. 

At any rate there are more important things for us to worry about than the plundering of this country (planet) by Wall Street.

V

PS So what do you think? Should Phil have hit that 6 iron 207 yards to within 4 ft. or should he have laid up?

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Re: SEC Charges Goldman Sachs With Fraud On Subprime ...

Zerohedge has articles posted on this as well... http://www.zerohedge.com/article/goldman-sacked 

Is someone finally standing up to the vampire squids of the world? Or is this yet another p.r. stunt, where deals will be cut, a few low-level patsies will be convicted, and business as usual will continue? Only time will tell ...

And later in the article...

Are the prosecutions finally starting? Is the dam finally breaking? Has Goldman really been sacked?

Maybe.

But Tyler Durden thinks it's all bread and circuses.

And as Mish points out (edited slightly for readability):

   Here is a list of some of the things the SEC has ignored.

    - Geithner's Illegal Money-Laundering Scheme Exposed; Harry Markopolos Says “Don’t Trust Your Government”

   - Secret Deals Involving No One; AIG Coverup Conspiracy Unravels - Questions Geithner Cannot Escape

    - Time To Indict Geithner For Securities Fraud

    - Bernanke Guilty of Coercion and Market Manipulation

    - Paulson Admits Coercion; Where are the Indictments?

    - Bernanke Suffers From Selective Memory Loss; Paulson Calls Bank of America "Turd in the Punchbowl"

    - Let the Criminal Indictments Begin: Paulson, Bernanke, Lewis

 *** 

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Re: SEC Charges Goldman Sachs With Fraud On Subprime ...
pinecarr wrote:
bearmarkettrader wrote:

Either the SEC diligently pursues goldman for billions or the accept a 200 million as a settlement. Based on the past the SEC will probably settle.

If the gov was intent on truly prosecuting goldman a nasty lawsuit would have been brought last year when GS was weak. How convenient that the suit is brought when GS is back on its feet making billions per quarter.

I agree with bearmarkettrader and others; I'll believe it when I see it.  

Fwiw, I think a settlement would still do significant damage to GS' reputation as a hedge fund who actually cares about its clients. So either GS wages a battle against the SEC and wins or we do. As most other people on this site, I don't have much hope for the latter, especially since they may effectively own the SEC. Of course its also possible that GS will settle counting on irrational and greedy investors to continue giving them their money despite the fact they have admitted to fraud.

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Re: SEC Charges Goldman Sachs With Fraud On Subprime ...

Here is a good article explaining what may have been the motives of the SEC:

http://theautomaticearth.blogspot.com/2010/04/april-19-2010-did-sec-plant-goldman.html

Quote:

Instead, what the SEC may have done, and in my dream hopes they -or at least one or more individuals in their offices- did intentionally, is to hand a great big giant tool with which the likes of Goldman can be hunted down, to anyone and everyone who feels aggrieved by the sort of practices the SEC has now revealed. Maybe the SEC people realized long ago that they weren’t up to battling Goldman all the way. But they also realized that they had powertools for rent, they had information that some other parties would have killed their mothers-in-law for, but no way to get it to them. Until now.

Ingenious! Now people need to wake up and take advantage of this "goldman" opportunity...

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Re: SEC Charges Goldman Sachs With Fraud On Subprime ...

I actually saw this in the Onion

V

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Re: SEC watches porn as economy crashes ...

OK then..

Nice work if you can get it??

http://www.theaustralian.com.au/news/breaking-news/sec-employees-watched-porn-as-economy-crashed/story-fn3dxity-1225857389770

SENIOR employees at the Securities and Exchange Commission spent hours surfing pornographic websites on government-issued computers while they were being paid to police the financial system, an agency watchdog says.

The SEC's inspector general conducted 33 probes of employees looking at explicit images in the past five years, according to a memo obtained by The Associated Press.

The memo says 31 of those probes occurred in the 2 years since the financial system teetered and nearly crashed.

It was written by SEC Inspector General David Kotz in response to a request from Senator Charles Grassley.

An SEC spokesman declined to comment last night.

The memo was first reported yesterday evening by ABC News. It summarises findings of past inspector general probes and reports some shocking findings:

* A senior attorney at the SEC's Washington headquarters spent up to eight hours a day looking at and downloading pornography. When he ran out of hard drive space, he burned the files to CDs or DVDs, which he kept in boxes around his office.

* An accountant was blocked more than 16,000 times in a month from visiting websites classified as "sex" or "pornography". Yet he still managed to amass a collection of "sexually suggestive and inappropriate images" on his hard drive.

* Seventeen of the employees were "at a senior level", earning salaries of up to $222,418.

* The number of cases jumped from two in 2007 to 16 in 2008.

The cracks in the financial system emerged in mid-2007 and spread into full-blown panic by the fall of 2008.

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