Goldman Accused of Subprime Fraud

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Goldman accused of subprime fraud
By Francesco Guerrera and Henny Sender in New York Published: April 16 2010 16:11 | Last updated: April 17 2010 00:56

US authorities on Friday accused Goldman Sachs of securities fraud that caused investor losses of more than $1bn, in the toughest regulatory crackdown so far on the excesses of the credit-bubble era. News of the civil action by the Securities and Exchange Commission wiped more than $12bn off the market value business model, and rocked other banks. The SEC move came as President Barack Obama made a final push for financial reform in the Senate

Goldman and one of its vice-presidents of failing to disclose that in 2007 the hedge fund Paulson & Co had a major role in creating a collaterised debt obligation, a security backed by subprime mortgages, so that it could bet against it. d the firm and its position of Lloyd Blankfein CDO but did not name any executives. Goldman shares closed nearly 13 per cent lower to $160.70. The civil complaint alleges that Goldman and Fabrice Tourre, one of its vice-presidents, hid from investors the fact that Paulson & Co, which has not been charged, had a heavy hand in influencing the composition of loans that made up the CDO. Mr Tourre could not be reached for comment. -

Within nine months of the creation of the CDO, 99 per cent of its loans had been downgraded, yielding Paulson & Co a profit of $1bn. Investors around the globe including IKB, the German bank which became the first casualty of the credit crisis in July 2007, lost $1bn, the complaint said. Goldman was paid a $15m fee and received a further $841m from Royal Bank of Scotland, which had bought ABN Amro. Most of the RBS payment was passed on to Paulson & Co. ABN had taken on the risk associated with parts of the CDO. RBSwas on Friday night considering whether they could take legal action against Goldmanlegal action…...

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