Goldman Sachs fraud

The Securities and Exchange Commission is accusing Goldman Sachs of “[creating] and [selling] a mortgage investment that was secretly devised to fail,” according to The New York Times. The investment in question, Abacus 2007-AC1, was the brainchild of hedge-funder John A. Paulson. The Times reports: “Goldman let Mr. Paulson select mortgage bonds that he wanted to bet against—the ones he believed were most likely to lose value—and packaged those bonds into Abacus 2007-AC1, according to the S.E.C. complaint. Goldman then sold the Abacus deal to unsecured loans investors like foreign banks, pension funds, insurance companies and other hedge funds.”Goldman is denying any wrongdoing. A statement to the paper noted that the investments “were popular with many investors prior to the financial crisis because they gave investors the ability to work with banks to design tailored securities which met their particular criteria.” However, according to charges from Robert Khuzami, director of the Division of Enforcement at the S.E.C., “Goldman wrongly permitted a client that was betting against the mortgage bad credit loans 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.” Investors—maybe make that “former investors”—now appear to be betting against Goldman: The Wall Street Journal reports that the bank’s stock has already dropped 12 percent.