This is hot off the press as I am writing this blog. Goldman Sachs has been accused of fraud in the marketing of Collateralized Debt Obligation's (CDO's) that was at the heart of the financial crisis.
Goldman Sachs created subprime housing CDO's and then shorted them, knowing that the securities would default. More to come, but essence is that Goldman Sachs created these securities and sold them to others while profiting from their ultimate default.
It was not just the institutions who bought these CDO's that was defrauded, it led substantially to the financial crisis that occurred.
I will update this news later, but I have written about this in earlier blogs and I have been roundly criticized by those who blamed the financial failure on straw men.
I, for one, am not surprised in the least at these revelations.
"In its lawsuit, the SEC alleged that Goldman structured and marketed a synthetic collateralized debt obligation, ABACUS, that hinged on the performance of subprime residential mortgage-backed securities.
It alleged that Goldman did not tell investors "vital information" about ABACUS, including that Paulson & Co was involved in choosing which securities would be part of the portfolio. It also alleged that Paulson took a short position against the CDO in a bet that its value would fall.
According to the SEC, the marketing materials for the CDO showed that a third party, ACA Management LLC, chose the securities underlying the CDO.
Paulson & Co paid Goldman $15 million to structure and market the CDO, which closed on April 26, 2007, the SEC said.
Little more than nine months later, 99 percent of the portfolio had been downgraded, the agency said."
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