In 2010, The Securities and Exchange Commission (SEC) which was created in 1934 & which holds the primary responsibility for enforcing federal securities law and regulating the securities industry in America, charged Goldman-Sachs with the structuring & marketing of CDO’S that hinged on the performance of RMBS.
The SEC alleged that Goldman & Fabrice Tourre a top executive at Goldman, had violated anti-fraud provisions by structuring & marketing these complex products, in particular failing to disclose essential information to investors.
Some of the breaches included a failure to disclose the role Paulson & Co Inc. a major hedge fund played in the portfolio selection process and the fact that Paulson and Sachs had taken a short position against the CDO , essentially they believed that the value of the portfolio would go down. This was a clear conflict of interest as Paulson were allowed to choose the sub-prime mortgages to be thrown into the Abacus. Paulson had inside information and were able to bet against the RMBS to the detriment of Goldman’s clients.
Clients & investors included ACA : a third party with experience analysing credit risk in RMBS, IKB : a commercial bank in Germany, who lost $150m in to the Abacus , ABN AMRO : one of the largest banks in Europe before it was acquired by RBS .
These investors were provided with misleading information and were not notified of the fact that Goldman and Paulson Inc.; who was involved in the structuring of the security were betting against these securities and actually profited from them at the expense of Goldman’s clients . This behaviour was criminal and fraudulent, it showed clear conflicts of interest, a lack of duty of care for investors and mostly results in a lo...
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The Abacus SCDO explained: video http://www.youtube.com/watch?v=5bS6UsWKMuk. Lasted Accessed 8th March 2014.
http://www.ifre.com/1997-jp-morgan%E2%80%99s-us$700m-bistro-bond-the-first-cdo/21102932.article . Accessed 12th March 2014.
George Soros; CDOs And CDSs Must Be Regulated Because They Have No Social Benefit: http://www.businessinsider.com/george-soros-cdos-are-dangerous-and-must-be-regulated-2010-4#ixzz2vkpn3ad7 http://www.businessinsider.com/george-soros-cdos-are-dangerous-and-must-be-regulated-2010-4 . Accessed 12th March 2014.
https://mostlyeconomics.wordpress.com/2010/04/30/understanding-the-goldman-abacus-issue/ .Accessed 12th March 2014.
Transcripts of thw white house report on the Volcker Rule http://www.whitehouse.gov/photos-and-video/video/volcker-rule-financial-institutions#transcript . Accessed 11th March 2014.