I do believe that we have the makings of a little scandal for our 3rd world President et al.
It goes like this:
The bank is accused by America’s financial watchdog, the Securities and Exchange Commission, of not disclosing the full facts about the CDO, which was named ABACUS 2007-AC1. Investors bought the CDO on the basis that the mortgages which made up the underlying investment would continue to perform — that people would make their monthly payments.
While some investors were buying the CDO, Goldman also had a client which was selling it — or shorting it. That was Paulson & Co, a New York-based hedge fund, which took a gloomy view of America’s housing market and therefore expected home owners to default.
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The fact that Paulson was shorting the CDO is not contentious. What the SEC hopes to prove is that Paulson significantly enhanced its chances of being right by helping to select which mortgages that went into ABACUS 2007-AC1. The SEC believes Paulson got a large chunk of poor quality mortgages put into the CDO. It points out that six months after the deal was concluded, 83 per cent of the underlying mortgage assets had been downgraded by the ratings agencies.
So, the first action from Goldman Sachs is to run away from the employee :
April 21 (Bloomberg) — Goldman Sachs Group Inc. said the U.S. fraud case against the firm hinges on the actions of the employee it placed on paid leave this week.
Fabrice Tourre, the 31-year-old Goldman Sachs executive director who was accused of misleading investors about a mortgage-linked investment in 2007, will also be de-registered from the Financial Services Authority, a spokeswoman at the firm in London said yesterday.
“It’s all going to be a factual dispute about what he remembers and what the other folks remember on the other side,” Greg Palm, Goldman Sachs’s co-general counsel, said in a call with reporters yesterday, without naming Tourre. “If we had evidence that someone here was trying to mislead someone, that’s not something we’d condone at all and we’d be the first one to take action.”
By characterizing the case as a dispute involving a single employee, Goldman Sachs may be taking its first steps to publically distance itself from Tourre in the case, some lawyers said. That could reduce bad publicity and ultimately make it easier for the company to settle the case.
Goldman Sachs may also want to separate itself from Tourre if it’s concerned he will cooperate with the SEC or implicate more senior employees, said Onnig Dombalagian, a professor at Tulane University Law School in New Orleans and former attorney fellow at the SEC.
Byron Georgiou, a member of a U.S. panel that’s investigating the financial crisis, said he doubts Goldman Sachs could make a convincing case that Tourre acted alone and without the full support of his superiors.
“It’s hard to imagine that there wasn’t some supervision of a 27-year-old, at that time, trader structuring a billion- dollar transaction on which Goldman made a $15 million fee,” Georgiou, who serves on the Financial Crisis Inquiry Commission, said in a Bloomberg Television interview.
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