Goldman Sachs Group Inc. has been charged with fraud by the U.S. Securities and Exchange Commission in the structuring and marketing of a debt product tied to subprime mortgages. The SEC alleged that Goldman structured and marketed a synthetic collateralized debt obligation that hinged on the performance of subprime residential mortgage-backed securities, and which cost investors more than $1 billion. It was alleged in the complaint that Goldman did not tell investors “vital information” about the CDO, called ABACUS. This included allegations that a major hedge fund, Paulson & Co., was involved in choosing which securities would be part of the portfolio, and had taken a short position against the CDO in a bet its value would fall.
According to the SEC complaint, Paulson & Co. paid Goldman $15 million to structure the CDO, which closed on April 26, 2007. Little more than nine months later, 99% of the portfolio had been downgraded, according to the SEC. It was stated by the SEC that Goldman Vice President Fabrice Tourre, who also was charged with fraud, was principally responsible for creating ABACUS.
Source: Insurance Journal
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