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Explanation of the SEC Charges against Goldman Sachs
Posted By Jim On 04/19/2010 @ 12:19 pm In NEWS | 26 Comments
I’m sure you’ve heard the recent news that the SEC has charged Goldman Sachs with fraud  for misleading some of its investors. At the core of the complaint is that Goldman structured and marketed a synthetic CDO but failed to disclose key aspects of the product. The key aspect in question here is that the architect of the CDO hand picked the pieces of the CDO and then bet against it.
If you read the complaint and are still unsure what happened, this video explanation by Patty Hirsch on Marketplace will explain it with an easily understood analogy and the absence of much editorial (which is hard to find these days):
It remains to be seen how this all shakes out but unless we get specifics of how people were deceived, it looks to me like someone is just being set up for other motives. As an investor, you should know that there’s someone on the other side of the deal. Goldman is like a bookie, they profit off the action, not off the end result. You bet on the New York Jets and they find someone to bet against it, taking a piece of the action along the way. They don’t care if the Jets win or lose, only that the game happens. I think it doesn’t matter that investors didn’t know that Paulson shorted it, because someone is on the other side of that CDO and it doesn’t matter who it is, but if there was clear deception then it should be dealt with.
What are your thoughts on all this?
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 SEC has charged Goldman Sachs with fraud: http://www.sec.gov/news/press/2010/2010-59.htm
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