SEC Sues Goldman Sachs, Alleging Fraud in CDO Tied to Subprime

1. SEC Sues Goldman Sachs, Alleging Fraud in CDO Tied to Subprime
By Gregory Mott

April 16 (Bloomberg) -- Goldman Sachs Group Inc. was sued by U.S. regulators for fraud tied to collateralized debt obligations that contributed to the worst financial crisis since the Great Depression. The firm’s shares tumbled as much as 16 percent and financial stocks slumped.

Goldman Sachs misstated and omitted key facts about a financial product tied to subprime mortgages as the U.S. housing market was starting to falter, the Securities and Exchange Commission said in a statement today. The SEC also sued Fabrice Tourre, a Goldman Sachs vice president.

“The product was new and complex but the deception and conflicts are old and simple,” SEC Enforcement Director Robert Khuzami said in the statement. “Goldman wrongly permitted a client that was betting against the mortgage 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.”

The SEC alleged that Goldman Sachs, led by Chief Executive Officer Lloyd Blankfein, 55, structured and marketed CDOs that hinged on the performance of subprime mortgage-backed securities. The New York-based firm failed to disclose to investors that hedge fund Paulson & Co. was betting against the CDO, known as Abacus, and influenced the selection of securities for the portfolio, the SEC said. Paulson wasn’t accused of wrongdoing.

Financial Stocks Slump

A gauge of banks and brokerages in the Standard & Poor’s 500 Index sank 3.9 percent for the top loss among 24 groups after the SEC announced its action. Bank of America Corp. and JPMorgan Chase & Co. lost at least 3.5 percent as all 27 companies in the S&P 500 Diversified Financial Index declined.

“This gave the politicians everything they need to push for stronger financial reform and it’s going to further shake investor confidence in Wall Street,” said Matthew McCormick, a banking-industry analyst and portfolio manager at Bahl & Gaynor Inc. in Cincinnati, which oversees $2.8 billion.


2. Goldman Sachs charged with fraud by SEC
NEW YORK, Fri Apr 16, 2010 11:05am EDT

(Reuters) - Goldman Sachs Group Inc was charged with fraud on Friday 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 alleged that Goldman did not tell investors "vital information" about the CDO, called ABACUS. This included 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 percent of the portfolio had been downgraded, the SEC said.

The SEC said Goldman Vice President Fabrice Tourre was principally responsible for creating ABACUS. It also charged him with fraud.

3. 美證監控高盛欺詐 累投資者損失10億美元

美國證券交易委員會向高盛集團提出民事訴訟，指控高盛在設計及銷售與次按相關的債務抵押債券(CDO)時，涉嫌欺詐，令投資者損失超過10億美元。高盛發表聲明，否認欺詐，形容指控毫無根據。

美國證監指控，高盛未向投資者披露大型對沖基金保爾森公司對該產品沽空的「關鍵信息」。

證交會稱，保爾森公司07年向高盛支付約1500萬美元的設計和行銷費用，安排交易。購入CDO的為2間歐洲銀行，當中荷蘭銀行（ABN Amro）損失了8.41億美元，另1間德國銀行IKB Deutsche Industriebank AG則損失1.5億美元。
遭到起訴的還有高盛副總裁陶爾（Fabrice Tourre），他涉嫌在美國樓市開始下跌時，透過不實陳述及隱瞞與次按相關事宜，欺騙投資者，應對事件負主要責任。

美國證監法規執行部董事Robert Khuzami認為，有關產品是創新及複雜的，但是其原理卻很簡單；高盛則誤導客戶相信有關產品涉及的次按證券是由獨立第三者ACA所揀選，事實上有關證券是一名對沖基金巨擘所選擇 。



My Comments:

(a) The Lehman Minibond sold in Hong Kong, was arranged by Lehman Brothers Asia, the CDO & Structured Credit Group headed by Leon Hindle.

Why did Mr. Leon Hindle lie about the purpose of the CDS which was actually the underlying securities for a Minibond Series ?

雷曼亚洲安排了迷债及迷债最为隐藏之部分：合成CDO。雷曼亚洲让迷债发行商Pacific International Finance (汇丰所属）买入雷曼自己安排的合成CDO("Septermber 25, 2006 Derivatives Week")。雷曼亚洲之结构产品部门主管 Leon Hindle 却在新闻发布上讲：此产品是“通过直接销售和第三者分销商卖给各类投资者”。

Leon Hindle 掩盖了此产品其实是作为迷债抵押品， 100％全數直接卖给Pacific International Finance的事实。掩盖了此产品是为迷债抵押品而设计的事实, 掩盖了此产品跟雷曼迷你债券的关系。 掩盖了雷曼一手操纵此产品之买卖双方之事实。

A deception ?

(b) When banks in Hong Kong selling Minibond to their retail clients,

- did banks / banks staff tell clients ''vital information" about the so-called Minibond collateral (or: Minibond underlying securities) which is essentially another layer of credit-linked products?

- did banks tell banks staff ''vital information" about the so-called Minibond collateral (or: Minibond underlying securities) which is essentially another layer of credit-linked products, during banks training session /or banks guidance on the related products?