SEC Charges Goldman Sachs with Fraud

[QueEx]

<font size="5"><center>
SEC Charges Goldman Sachs with Fraud
on Mortgage-Backed CDOs </font size></center>

Lloyd C. Blankfein, Chairman of the Board and CEO, Goldman
Sachs Group, Inc., testifies before the Financial Crisis Inquiry
Commission. (Olivier Douliery /Abaca Press/MCT)


Bloomberg
By Joshua Gallu
and Christine Harper


<font size="3">April 16 (Bloomberg) -- Goldman Sachs Group Inc. was sued by U.S. regulators for fraud tied to packaging and selling collateralized debt obligations that contributed to the worst financial crisis since the Great Depression.</font size>

Goldman Sachs misstated and omitted key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter, the Securities and Exchange Commission said in a statement today. The SEC also sued Fabrice Tourre, a Goldman Sachs vice president.

The SEC alleged that Goldman Sachs, led by Chief Executive Officer Lloyd Blankfein, structured and marketed CDOs that hinged on the performance of subprime mortgage-backed securities. The New York-based firm failed to disclose to investors that hedge fund Paulson & Co. was betting against the security and influenced the selection of securities for the portfolio, the SEC said. Paulson wasn’t accused of wrongdoing.

“The product was new and complex but the deception and conflicts are old and simple,” SEC Enforcement Director Robert Khuzami 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.”

Shares of Goldman Sachs fell 11 percent to $163.91 as of 11 a.m. in New York Stock Exchange trading.

Goldman Sachs spokesman Lucas Van Praag didn’t return a call and an e-mail seeking comment. A call to Richard Klapper, an attorney for Goldman Sachs at Sullivan & Cromwell LLP, wasn’t returned. Tourre, reached by phone in London today, declined to comment. A call to Pamela Chepiga, a lawyer for Tourre at Allen & Overy LLP, wasn’t returned.

To contact the reporters on this story: Joshua Gallu in Washington at jgallu@bloomberg.net

http://www.bloomberg.com/apps/news?pid=20601087&sid=aUpzxecxkNUU

 

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[SPECTRE1]

I look at all the garbage Wall Street puts out to get bonuses and parachute out. I would like to see:

1.Structuring mortgages with the risk of default completely separate like homeowners insurance. If you mortgage is underwater, you should pay up in premiums to cover potential loses.

If you get stuck with a subprime rate, you can shop just that portion, without having to refinance the whole loan.

Banks try to compensate/cushion by paying nothing in interest, even though I don't have a mortgage or worse yet dumping into the secondary market and taxpayer coming up the money. I should get paid more in interest, and the people that are underwater or overleveraged should be coming up with money.

2. 'Synthetic Mortgages', much more flexibility...

:LOL

 

[QueEx]

 

[Lamarr]

I wouldn't be surprised if these cats shorted their own stock in anticipation of friday's release.

Anyway, more fascist propaganda to bring about "reform"

Once again, it's called problem, reaction, solution!

 

[Panameno718]

 

[fourth_retired]

Goldman Sachs is guilty but why did the SEC wait so long you ask? To get this Finance regulation bill passed. If it wasn't for this bill nobody would be worried about Goldman Sachs and their shady deals. I sold all my GS,my partner plans on buying back later but I wouldn't mind if GS is never in this portfolio again.

 

[Panameno718]

http://www.bgol.us/board/showthread.php?t=457702

Goldman Sachs is guilty but why did the SEC wait so long you ask? To get this Finance regulation bill passed. If it wasn't for this bill nobody would be worried about Goldman Sachs and their shady deals. I sold all my GS,my partner plans on buying back later but I wouldn't mind if GS is never in this portfolio again.

 

[Lamarr]

#1. Mark Patterson - former Goldman Sachs lobbyist now Geithner's chief of staff at Treasury, which oversees the government's $700 billion financial bailout program. Goldman Sachs received $10 billion of that money. http://www.usatoday.com/news/washington/2009-01-27-lobbyist_N.htm

#2. Gary Gensler - Gensler spent 18 years at Goldman Sachs, making partner when he was 30, becoming head of the company’s fixed income and currency trading operations in Tokyo by the mid-’90s, and eventually the company’s co-head of finance. Now Chairman Commodity Futures Trading Commission http://www.pbs.org/nbr/site/onair/t..._commodity_futures_trading_commission_100311/

#3. Robert D. Hormats - Vice Chairman, Goldman Sachs (International). Now Robert D. Hormats is Under Secretary for Economic, Business, and Agricultural Affairs State Department http://www.state.gov/r/pa/ei/biog/129529.htm

#4. Adam Storch - Managing Executive of the Security and Exchange Commission's Division of Enforcement. He was previously the Vice President in the Business Intelligence Group at Goldman Sachs. http://www.sec.gov/news/press/2009/2009-220.htm (side note - was appointed to his current position at age 29)

 

[QueEx]

 

[muckraker10021]

Goldman Sachs is not the same firm it was in 1985- 1995. (Full disclosure I worked there during that time). The best simple analogy I can give you, as a former insider, as to what happened is this: Goldman was the Rolls Royce of Wall Street; - Big, Luxurious, Heavy, Steady, Quiet, Smooth, Dependable, Top-Of-The-Line. When Hank Paulson took over from Jon Corzine in 1999 he turned the Rolls Royce into a Ferrari - Rough Ride, Light, Loud, Extreme Speed, Flashy, 2 seater.

On Wall Street he was known as “MR RISK” . He increased the leverage at Goldman 500 percent. (…Goldman, under Paulson's leadership, became one of the greatest and most profitable risk-taking machines ever built….That means taking on more debt: $100 billion in long-term debt in 2005, compared with about $20 billion in 1999. It means placing big bets on all sorts of exotic derivatives and other securities….from - “MR RISK” . "Goldman is a horse of a different color now," said Samuel L. Hayes III, professor emeritus of investment banking at Harvard Business School in 2001

The charges against Goldman have merit. Let me cut through all the esoteric bull-shit in the media and explain Goldman’s fig-leaf defense of what they did.

Imagine you walk into a legal whore house. Five beautiful whores are presented to you for you to pick the one you want. One of the whores has a STD (Sexually Transmitted Disease). The madam of the whore house (Goldman) doesn’t tell you that one of whores has an STD. You pick the whore with the STD. Three months later you find out you have the STD that the whore had. You call the whore house madam (Goldman) and ask “Why didn’t you tell me that beautiful whore had an STD.??” The madam says “I assumed a man as experienced in these matters as you would use a condom, I was not obligated to disclose that one of my whores had STD” That is essentially Goldman’s fig-leaf defense.

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Olive Oil and Snake Oil

April 28, 2010

by Maureen Dowd

http://www.nytimes.com/2010/04/28/opinion/28dowd.html

You kept expecting Tom Hagen to jump up and object to a senator’s question on behalf of his Don.

The wood-paneled Senate committee room had an old-school look. The combed-over committee chairman, Carl Levin, had an old-school look. And the Congressional hearing trying to illuminate surreptitious and avaricious behavior by an amoral, macho gang was the 2010 equivalent of the 1950s Mafia hearing depicted in “Godfather II.”

“Government Sachs,” as the well-connected Goldman Sachs is known, was called to account by the actual government on Tuesday. And the traders and executives who dreamed up the idea of packaging smoke were every bit as slick, evasive and dismissively unapologetic as Michael Corleone. He only claimed to trade in olive oil; they actually delivered the snake oil.

You know you’re ethically compromised when Senator John Ensign scolds you about ethics. The Nevada Republican is under investigation by the Senate Ethics Committee and the F.B.I. for chicanery surrounding an affair with a staffer. His wealthy parents paid off the mistress and her husband, who was also on Ensign’s payroll.

“I think most people in Las Vegas would take offense at having Wall Street compared to Las Vegas. Because in Las Vegas, actually people know that the odds are against them. They play anyway,” said the righteous Ensign. “On Wall Street, they manipulate the odds while you’re playing the game. And I would say that it’s actually much more dishonest.”

There was a bipartisan jackpot in casino metaphors.

“How does that differ from going out to Caesars Palace, the sports book, and making a wager on the outcome of an athletic contest?” Senator John McCain of Arizona asked C.E.O. Lloyd Blankfein.

But the Republicans’ whacking of Wall Street’s wise guys lost a little of its punch when you knew that they were ducking out to the Senate floor, trying to thwart Democrats’ efforts to pass a bill tightening regulation of Wall Street. Republicans ignored the contradiction in this, the same way Goldman Sachs ignored the conflict in betting against the product it sold to clients.

President Obama bashed Wall Street to pose as a tough populist. The S.E.C. dragged itself away from porn long enough to make an example of Goldman Sachs to shore up its image as a strict enforcer. And Goldman Sachs came to Washington to try to recover an image for integrity.

As Americans lost homes and lined up for jobs, Goldman made $13 billion in 2009, and Blankfein got a bonus of, as he haltingly admitted to McCain, “um, um, nine million.”

“The idea that Wall Street came out of this thing just fine, thank you, is something that just grates on people,” Delaware Senator Ted Kaufman told Blankfein. “They think that you didn’t just come out fine because it was luck. They think that you guys just really gamed this thing real, real well.”

Baby-faced Josh Birnbaum, the former managing director who urged betting against subprime mortgages, did not polish the firm’s reputation with his elitist smirk and name-dropping of Wharton.

“Mr. Birnbaum, do you know what a stated income loan is?” Senator Kaufman asked.

“I think it’s just what it sounds like,” Birnbaum replied, like a petulant schoolboy in detention.

The Goldman crowd was certainly cosmopolitan. Blankfein dropped a Latin phrase (Goldman had a “de minimis” business in direct home loan mortgages) and French peppered Senate Exhibit No. 62, from the petite, handsome Fabrice Tourre, the S.E.C. target who called himself “the fabulous Fab” in a 2007 e-mail.

“More and more leverage in the system, l’edifice entier risqué de s’effondrer a tout moment. ... Seul survivant potentiel,” gushed the highflying Frenchman charged with creating subprime mortgage investment deals intended to fail. That translates loosely to: the cheese stands alone.

Continuing to talk about himself in the third person, he wrote, “Standing in the middle of all these complex, highly levered, exotic trades he created without necessarily understanding all the implications of those monstruosities!!! Anyway, not feeling too guilty about this. ...”

In an e-mail to his girlfriend, he called his “Frankenstein” creation “a product of pure intellectual masturbation, the type of thing which you invent telling yourself: ‘Well, what if we created a “thing,” which has no purpose, which is absolutely conceptual and highly theoretical and which nobody knows how to price?’ ”

In another e-mail to her, he blithely joked that he was selling toxic bonds “to widows and orphans that I ran into at the airport.” At least the Fabulous Fab had the good manners to cloak his feelings of fabulousness in front of the committee and put on an earnest mask. Luckily for Goldman, greed may trump ethics. The firm’s stock closed higher Tuesday. Wholesale olive oil closed higher as well.