Update: SEC says Goldman defrauded investors of $1 billion

By John Byrne
Friday, April 16th, 2010 -- 11:00 am

lloyd blankfein goldman sachs Update: SEC says Goldman defrauded investors of $1 billion

The Securities and Exchange Commission has charged investment banking titan Goldman Sachs with civil fraud over a pre-packaged mortgage instrument they say was designed to fail.

Goldman Sachs created the derivative -- called Abacus 2007-AC1 -- in response to a request from a hedge fund manager who predicted that the housing market would collapse and wanted to bet against it. The trader, John Paulson, later earned $3.7 billion for his wager. Goldman's practices cost investors $1 billion, according to the filing.

According to the New York Times, which first revealed details of the Abacus case, the instrument was among 25 Goldman created so that clients could bet against the housing market:

As the Abacus deals plunged in value, Goldman and certain hedge funds made money on their negative bets, while the Goldman clients who bought the $10.9 billion in investments lost billions of dollars.

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 investors like foreign banks, pension funds, insurance companies and other hedge funds.

Story continues below...

But the deck was stacked against the Abacus investors, the complaint contends, because the investment was filled with bonds chosen by Mr. Paulson as likely to default. Goldman told investors in Abacus marketing materials reviewed by The Times that the bonds would be chosen by an independent manager.

Apparently, they weren't.

Fabrice Tourre, a vice president at Goldman who helped design and market Abacus, was also named in the SEC suit.

84 percent of Abacus' mortgage bonds would be downgraded within five months of their sale. By the end of 2007, Paulson's credit hedge fund soared 590 percent, and Goldman's clients lost billions.

Goldman reportedly targeted specific mortgage bonds at Paulson's request that Paulson felt were most likely to lose their golden credit ratings, which would trigger a payout for his firm.

Goldman did not immediately comment on the suit. The company's shares fell more than 10 percent on the news.

Shareholder recently sued firm for huge bonus payouts

In January, a lawsuit filed against the investment bank by a shareholder alleged that the company spent more money on corporate bonuses than it earned in 2008.

Shareholder Ken Brown's lawsuit is one of two suits filed against the company over its controversial decision to hand out billions of dollars in bonuses even after it was accused of playing a central role in the financial collapse of 2008 and receiving $10 billion in direct aid from the US government.

In his lawsuit (PDF), Brown asserted that Goldman Sachs gave out $4.82 billion in bonuses in 2008, despite earnings of only $2.32 billion that year. The lawsuit alleges that the company spent 259 percent of its income in the first quarter of 2009 on compensation.

Goldman Sachs handed out $16.7 billion in compensation in the first nine months of 2009, according to Bloomberg News, and that figure may reach $22 billion for the entire year. Brown's suit says the company typically sets aside 44 percent of its net revenue for employees.

“Payment of this exorbitant amount of compensation, which has little to do with Goldman Sachs’s performance, and was financed in large part with government bailout and taxpayer money, is a waste of the company’s assets and a breach of duty and loyalty," Brown asserts in the suit.

Goldman CEO Lloyd Blankfein earned $9 million in a non-cash bonus for 2009. In prior years, he'd earned more than $20 million.

  • nostrafarious
    Christ! More like 1 Trillion! Dumbf**cks
  • bushfatigue
    It time to cast the money changers out of their Wall Street temple--this was gaming the system to shake money out of the suckers. I wonder if they are beginning to ask questions in the synagogues about Jewish business ethics--Bernie Madoff preyed on his own, which is surely going too far.
  • Barb
    Goldman same as health insurance companies. Health insurance associations working day in and day out to destroy the best interests of the public they actively seek to fleece by high premiums, denials of health care while pulling gross executive compensation/retirement packages.

    Is there any government leader that really cares about the public welfare? I doubt it.
  • nocreditnoproblem
    sadly, no one in this case will be punished
    because the supreme court has a "justice default swap"
    on the financial sector (read: republicans).

  • alfre1do
    Gee, that's just chump change! Are you sure it cost us just one lousy billion. Those guys hate to even give you the time of day for just one lousy fuckin billion bucks. they like to deal in $BILLIONS.
    Come on turn over a few mattresses or something you'll find much more. You'd think though that even if it is just one lousy billion they would be charged with something criminal. After all Martha Stewart served 5 months--- for what? FOR WHAT?
  • cynthiza
    Like McCain said, it's a casino. And he wanted us to invest in the stock market for our retirement? Such a joke...
  • starvapor
    What's going to be fun, will be watching the GOP defend the greed squid's action by trying to veto any banking reform and have to explain to the the populace why they're still in bed with this squid.
  • NadePaulKuciGravMcKi
    "I say we take off and nuke the entire site from orbit. It's the only way to be sure."
  • Shoto
    Copy that.
  • markusgarvey
    what i don't understand is how the wall street casino got to be such an integral part of world economy...the house always wins...and all the news reports the dow as some all important barometer on our economic well being...OMG!...the dow just hit 11,000!...all that means is they have found a new way to game the system...why cant i just bet that my local casino will win money on any given day?...
  • Shoto
    Hey Paulson: Bye Bye, Dickhead...
  • janmarbol
    Whores. Cliché but true, the rich get richer. Suck blood - and then SUCK BLOOD... and then bet on the blood you sucked, as you suck some more. The word 'leech' just got downgraded in significance and meaning. We need a new one for these jerks.

    Ah, but there's a special place for these bastards. It's not hell; it's right here and it's called karma - and it happens before you know it. Mark.My.Words.
  • charlottestevens
    So its all right in their world...They will just pay the One Billion fine from the 'Tarp' Money we gave them... No loss to them, but we got 'snookered' again, by DEM GUYS!
  • ninepipes
    GS , will be prosecuted to the fullest extent of the law ! Please do not let them off with just a civil suit, people need to get jail time over this.

    A fair trial OPEN TO THE PUBLIC, that lost ALL of their money.
  • Hang 'em High
    It's way more than a billion dollars when you take into account the massive job losses, market losses, and real estate value losses suffered by millions of Americans and also people overseas who were caught up in this crooked maelstrom. Why this company is still being allowed to do business is beyond me.
  • Shoto
    Actually, we need to start using the number "Trillion." The amount of money sucked out of the treasury by these criminals (aided and abetted by their gangster cronies in Congress) is in the multiple trillions.
  • Corporate Indu$trial Complex
    Goldman Sachs OWNS the Fed, and the SEC, and the Treasury Department. All of Bush's and Obama's most senior economic advisers and heads of those government agencies are former Goldman Sachs executives. And this kind of revolving door bankster-ing has been going on for years. That's why we bailed them out, because those who had Obama's ear scared him into believing there would be a depression if we didn't. They're all crooks, and they own U.S.
  • Corporate Indu$trial Complex
  • markusgarvey
    win-win... :/
  • aanndd
    goldmansachs to BIG TO JAIL just another dog and pony show, give'em a small fine and let them keep right on doing what there doing..nothing new here.
  • Dennis
    Watch all the shady participants walk away free - with their ill gained money as well.

    The DOJ doesn't have what it takes to bring down those "too big to fail."
  • Matt G.
    GS is totally going to set off a nuclear device as a distraction while they kill the necessary people to make this go away.... just saying
  • damixaustex
    Rescind their corporate charter, dissolve their assets, prosecute the principles and recover money from ALL of their shareholders.

    It's the only fair thing to do.
  • Shoto
    You forgot the part about: Remand the criminals to a maximum security federal pen.
  • howiebledsoe

    this is easily the best news Ive heard in a LOOOONG TIME!
    maybe the levee will finally break and more of these swine will fall.
  • Corporate Indu$trial Complex
    Sorry. That's not how it works in a corporatist industrial country (CIC).

    Sachs likely used the stolen billion to make billions more, THAT's how it works in a CIC.

    So even if Goldman Sachs is levied with a billion dollar fine (which they won't be), the monies will come out of corporate coffers that have already made many times that from the ill gotten gain -- plus, the crooks who engineered it all will get to keep every penny they made from it all (which is probably another billion in bonuses).
  • 1bassman9
    Civil fraud ? This is all part of their dog and pony show. Nothing to get excited about here. The Blankfeins, Rubins, Paulsons, Geithners, Gold-man Sacks alumni, the illuminated ones, always skirt the law because they always have the Hell-ersteins and Muck-aseys, etc, the Kol Nidre Gang, the one's who asked for forgiveness for the thefts they were about to commit the next year, prevent the public from getting their day in court. This is the same crowd that made money on put options on 911 betting against United and American airlines that Hellerstein refuses to let any family of the victims get their day in court for because Wall Street would be exposed.
  • peterlawrence
    Goldman Sachs is the cause of all serious economic problems in history. They should be broken up into a thousand companies and their execs, including Paulson, should be hung by their balls and beaten.
  • texanarch
    No doubt, Goldman Sachs is a firm full of shysters. No doubt, they have fucked a whole lot of people. No doubt, they knew they were fucking the people when they fucked the people. No doubt, they should all be doing time.

    Big doubt: They will be sufficiently brought to justice for their crimes.

    Big doubt: The system will be reformed sufficiently to prevent them from continuing to fuck people over and make out like the bandits they are.
  • Hologram5
    I agree, they wanted corp personhood, I say let's put it to the test and prosecute to the fullest extent of the law. These clowns are no better than bernie madoff.
  • Walt
    Of course now we will have Frank Lutz's talking points being spread around the usual right wing talking heads trying to spin to their brainwashed main street audience that somehow their freedoms are being taken away because of this decision. I mean how dare the government goes after these Wall Street crooks. They worked hard to defraud the American economy. That is what freedom is all about. Stealing money any way you can. Good luck on the sell. Slowly, hopefully we will see a few more Americans wake up from their brainwashed stupor and see the truth. Ironically, I could pretty much bet my house, that these charges would have never been filed if McCain/Palin would have won.

    On a side note... think about this: With the comical performances of both McCain and Palin since they have lost the election it is frighteningly clear what a mistake it would have been if they had won.
  • NadePaulKuciGravMcKi
    the chosen
    the superior
  • Live Free or Die
    Another NWO killing confirmed on video: http://www.youtube.com/watch?v=frgKTW3jm_Y

    It's gone viral! Peace world, we need it right about now...
  • Kurt_O
    Why did RS make the "Porter Goss Agreed with Destroying Waterboarding Tapes" story disappear so fast? Looked like a pretty good discussion getting started in the comments section:


  • yvonneo
    It hasn't "disappeared." It's just moved down the thread and is now entitled, "Miers was livid over waterboarding tapes."
  • trevinla
    So, TODAY is the 9am of the justice department's term??? it's about time they did some real work! maybe, just maybe they will prosecute some Bush crimes before the statute of limitations hits...
  • brandon
    OK now go after the other Paulson for the REALLY BIG con job......

    I have no doubt that these fuckers knew damn well what they were doing in advance of the crash. An investigation is in order.
  • OldAtlantic
    This is meant to fool the thralls. The FDIC is guaranteeing Goldman Sachs bonds. So they get a low rate. This covers any fine. Fed funds rate is low. GS is a bank now and borrows at low Fed Funds rate. Fed has supported mortgage market helping GS with its own holdings and supporting the market so GS can continue to sell structured mortgage derivatives.

    Meanwhile over 1 million immigrants a year during a job depression. Total jobs for non Hispanics are below 10 years ago. Chinese are educated in engineering and transfer know-how to China. Factory jobs went from 17 million ten years ago to 11 million today.

    Libs support this because it shows they are morally superior to hillbilly whites. CNN tells you to support it. So GS and CNN profit while you lose. You get to feel morally superior while they get money. Instead of complaining you call those who point this out names.

    You are pawns of GS and CNN in your own destruction. Your main moral outrage is spent making sure that immigration continues so that your education opportunity is lost and your bargaining power at work is low. Be sure and watch Maddow and Olbermann, who help keep your wages low and your education given to China and the factories follow the know-how give away. You are the useful idiots of your own demise. Don't expect Medicare and Social Security if you are white, the little left will not be used to cover you.
  • markusgarvey
    white people on wall street did this!...stop trying to shift the blame, because you fail OA..the main reason immigrant and resident jobs are down is due to outsourcing and automation and just plain greed...
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