The government has accused Goldman Sachs & Co. of defrauding investors by failing to disclose conflicts of interest in mortgage investments it sold as the housing market was faltering.
The Securities and Exchange Commission announced Friday civil fraud charges against the Wall Street powerhouse and one of its vice presidents. The agency alleges Goldman failed to disclose that one of its clients helped create -- and then bet against -- subprime mortgage securities that Goldman sold to investors.
Investors in the mortgage securities are alleged to have lost more than $1 billion, the SEC noted.
The Goldman client implicated in the fraud is one of the world's largest hedge funds, Paulson & Co., which paid Goldman roughly $15 million for structuring the deals in 2007.
Goldman Sachs shares fell more than 10 percent after the SEC announcement.
The civil lawsuit filed by the SEC in federal court in Manhattan was the government's most significant legal action related to the mortgage meltdown that ignited the financial crisis and helped plunge the country into recession.
A Goldman Sachs spokesman didn't immediately return a call seeking comment.
The agency also charged a Goldman vice president, Fabrice Tourre, 31, who it said was principally responsible for devising the deal and marketing the securities.
The SEC is seeking unspecified fines and restitution from Goldman Sachs and Tourre.
"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."
In my humble opinion, I think the current rally has lasted too longer even though it is supported well by its fundamental. With Goldman Saches being charged with fraud over its handling of subprime mortgages, it would serve well as a reason to take some profit out of the stock market. It could be a long winding road for Goldman Saches and traders would be following closely this Goldman Saches case.
On Friday, General Electric (GE), Bank of America (BAC), Google, Advanced Micro Devices, Mattel and Gannett release better-than-expected quarterly financial reports but yet the market can't manage to keep its rally. Traders are profit-taking and running away.
Ok, good luck.
GOon
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