SEC Charges Goldman Sachs, VP With Fraud
April 16 2010 - 11:26AM
Dow Jones News
The U.S. Securities and Exchange Commission on Friday charged
Goldman, Sachs & Co. (GS) and one of its vice presidents for
defrauding investors by misstating and omitting key facts about a
financial product tied to subprime mortgages.
The SEC said Goldman Sachs structured and marketed a synthetic
collateralized debt obligation, or CDO, that hinged on the
performance of subprime residential mortgage-backed securities.
According to the SEC, 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 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," Khuzami said.
The Goldman complaint is part of the SEC's investigation into
investment banks and others that securitize complex financial
products tied to the U.S. housing market as it was beginning to
show signs of distress, according to Kenneth Lench, Chief of the
SEC's Structured and New Products Unit.
-By Fawn Johnson, Dow Jones Newswires; 202-862-9263;
fawn.johnson@dowjones.com
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