Digital News Report – The US Securities and Exchange Commission have charged Goldman, Sachs & Co. along with one of its vice presidents for fraud today.
The charges are that the company had defrauded investors by misstating and not disclosing key facts relating to a financial product that was associated with the subprime mortgages.
The SEC is accusing Goldman Sachs of potentially creating and marketing a synthetic collateralized debt obligation (CDO) which relied on the returns from the subprime residential mortgage-backed securities (RMBS). According the SEC, Goldman Sachs did not disclose important information relating the the CDO, especially the fact that the investment relied heavily on the hedge fund.
“The product was new and complex but the deception and conflicts are old and simple,” said Robert Khuzami, Director of the Division of Enforcement. “Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party.”
The SEC’s complaint charges Goldman Sachs and Tourre with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5. The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest, and financial penalties.
The SEC is continuing their investigation into other investment banks relating to hedge funds.