{"id":4047,"date":"2010-04-27T23:13:27","date_gmt":"2010-04-28T03:13:27","guid":{"rendered":"http:\/\/1boringoldman.com\/?p=4047"},"modified":"2010-04-28T12:29:27","modified_gmt":"2010-04-28T16:29:27","slug":"in-big-trouble","status":"publish","type":"post","link":"https:\/\/1boringoldman.com\/index.php\/2010\/04\/27\/in-big-trouble\/","title":{"rendered":"in big trouble…"},"content":{"rendered":"\n

Reading through the SEC Filing<\/strong><\/a> against Fabrice Tourre and Goldman Sachs, it sure sounded like fraud to me. But I found this article, which fleshed out some of the legal issues in the case and made things clearer ["clearer" is a relative term with me when it comes to matters legal]:<\/p>\n

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Inside the SEC’s Legal Case Against Goldman Sachs<\/a>
Daily Finance <\/strong>
By ABIGAIL FIELD
04\/16\/10<\/div>\n

…Since all of the conduct at issue involves the sale of a security created and sold by Tourre and Goldman, the two key elements are whether Goldman\/Tourre made material misstatements or omissions, and whether they had sufficient intent — SEC must prove at least recklessness — to deceive or defraud. So let’s look at what the SEC alleges. The commission alleges that Goldman\/Tourre didn’t tell investors material information, specifically that the CDO it was selling had been deliberately constructed out of residential mortgages backed securities (RMBS) likely to experience "credit events" (i.e., become worthless or virtually so) at the request of, and with the active participation of, a Goldman client named Paulson & Co. That is, Goldman\/Tourre allegedly didn’t tell purchasers of the CDO it marketed that the CDO was designed to lose value.<\/p>\n

What could Goldman say in return? Perhaps that Paulson and Goldman weren’t alone in structuring the CDO. Goldman hired ACA Management LLC (ACA) to evaluate the RMBS securities put into the CDO. Why would ACA allow the CDO to be structured out of RMBS that were likely to experience credit events? The problem with this defense is that the SEC alleges, and has at least email to support it, that Goldman\/Tourre deceived ACA into thinking that Paulson’s interests were aligned with the potential CDO investors rather than diametrically opposed to them. ACA apparently believed that Paulson was investing a significant amount of money in the riskiest slice of the CDO, something that couldn’t have been further from the truth. <\/p>\n

Why does the SEC claim the RMBS were chosen precisely because they were likely to lose value?<\/div>\n