Goldman Sachs Charged with Fraud by the SEC

SEC Investigates Goldman Sachs

By Joe Taylor

Goldman in Trouble

04.16.10, 11:22 AM EST

On April 16, 2010, the Securities and Exchange Commission charged Goldman Sachs claiming the bank made fraudulent claims to investors regarding a synthetic collateralized debt obligation (CDO) named ABACUS created in 2007.

The government alleges Goldman Sachs created a security, chose the assets that would comprise the CDO with the help of Paulson & Co. (a firm who had a known short position against CDOs), and marketed them to investors with the intent of taking a long position - even though Paulson had a short position on the same securities. 9 months after the deal closed in April 2007, 99% of the portfolio had been downgraded.

Paulson paid Goldman $15 million on the deal. Investors in the CDO, like ABN Amro, lost roughly $1 billion. Paulson's short position against the CDO earned roughly the same amount.

Goldman Sachs and Goldman Vice President Fabrice Tourre have been principally charged with the fraud. Paulson was not charged with the complaint because the SEC states that Goldman was the one responsible for fraudulently marketing the security and failing to disclose the short position by Paulson.