Goldman Sachs: SEC Investigation & Fraud?

Last week, news broke that the SEC was accusing Wall Street giant Goldman Sachs of fraud related to certain CDOs sold to their investment clients. It was also said there was an ongoing investigation. The SEC maintains that Goldman failed to mention conflicts of interest, and helped design investments to fail all while betting against them.

The fraud lawsuit is the biggest crisis in years for Goldman, which emerged from the global financial crisis as Wall Street’s most influential bank.

However today, Goldman Sachs, amid the whole legal maelstrom and fraud accusations, posts a first-quarter net profit that doubled from its earnings of a year ago. How come?

What are the latest details of the SEC fraud investigation on Goldman Sachs?

asked by Demo in Law & Ethics | 2750 views | 04-20-2010 at 07:16 PM

Over the weekend only one financial story has been on everyone’s lips: The Goldman Sachs fraud case.

The investigation just started. Goldman Sachs has consistently denied betting against its clients. But the Securities and Exchange Commission (SEC) charged the Wall Street investment bank with securities fraud for doing just that: creating and marketing a complicated subprime-mortgage investment product in 2007 that was designed to fail, just as the housing market was beginning to show signs of distress.

The SEC alleged that Paulson & Co, a major hedge fund run by billionaire John Paulson, worked with Goldman in creating a collateralized debt obligation, and stood to benefit as its value fell, costing investors more than US$1-billion. That is roughly the amount that Paulson is estimated to have made by betting against the CDO.

Goldman Sachs claims that they did nothing wrong, and until the SEC investigation is complete we can’t say who is right – the SEC or Goldman. All we know is that the first quarter earnings for the firm are out and they have record profits.

Goldman Sachs reported that it raked in $3.46 billion in profits on $12.78 billion in net revenues during the first three months of the year. The $5.59 a share earnings beat expectations by Wall Street analysts, who predicted $4 a share in profit.

Despite the overhanging SEC lawsuit, David Viniar, Goldman’s chief financial officer, said the first-quarter results showed clients still support them.

“Our clients will support us as long as we provide good service,” he said.

It might be true that Goldman didn't do anything illegal, but surely once they were aware that a big hedge fund manager was aggressively shorting these CDOs they should have abandoned the creation of a CDO fund to be marketed to other clients.

answered by Armin | 04-20-2010 at 07:24 PM

Predatory Lending
Predatory Lending is a major contributor to the economic turmoil we are currently experiencing.

Here is an example of what I am talking about:
Scott Veerkamp / Predatory Lending (Franklin Township School Board Member.)

Please review this information from U.S. Senator Jeff Merkley regarding deceptive lending practices:
"Steering payments were made to brokers who enticed unsuspecting homeowners into deceptive and expensive mortgages. These secret bonus payments, often called Yield Spread Premiums, turned home mortgages into a SCAM."

The Center for Responsible Lending says YSP "steals equity from struggling families."
1. Scott collected nearly $10,000 on two separate mortgages using YSP and junk fees. 2. This is an average of $5,000 per loan. 3. The median value of the properties was $135,000. 4. Clearly, this type of lending represents a major ripoff for consumers.

answered by jmb27 | 04-21-2010 at 08:54 PM

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