Note, though, that this is a civil suit, which means that the crooks who dreamed this up are not likely to face jail time. Instead Goldman will probably end up having to pay out a lot of money to the investors they bilked, along with a fine. This would be in keeping with the medieval dictum about law: "poor man hanged by the neck, rich man by the purse."
According to the complaint, Goldman created Abacus 2007-AC1 in February 2007, at the request of John A. Paulson, a prominent hedge fund manager who earned an estimated $3.7 billion in 2007 by correctly wagering that the housing bubble would burst.
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.
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.
Saturday, April 17, 2010
Hanged by the Purse
What I've read about the shenanigans at Goldman Sachs sure made it seem like they had done something illegal, but I never really believed they would be prosecuted for it. Now, it seems, they will be. The SEC has filed suit over those arrangements whereby Goldman Sachs sold bundles of mortgages to clients as good investments, while simultaneously betting that those investments would fail: