Huffington Post | Ryan McCarthy First Posted: 04-16-10 10:51 AM | Updated: 04-16-10 11:49 AM
The Securities and Exchange Commission has charged Goldman Sachs with civil fraud over its controversial collateralized debt obligations tied to the subprime mortgage market.
As the New York Times notes in its in-depth story on the subject, the charges are “the first time that regulators have taken action against a Wall Street deal that helped investors capitalize on the collapse of the housing market.” A London-based vice president at Goldman, Fabrice Tourre, was also charged in the complaint.
In essence, the SEC claims Goldman Sachs and one of its top officers misled investors by failing to disclose that hedge fund manager John Pauson, who made billions betting against the housing market, selected the assets that went into a complex security called “Abacaus”.
Paulson, the SEC alleges, “paid Goldman Sachs to structure a transaction in which Paulson & Co. could take short positions against mortgage securities chosen by Paulson & Co. based on a belief that the securities would experience credit events.”
But Goldman Sachs, which was allegedly paid $15 million by Paulson, did not disclose these facts to investors who bought Abacus, according to the complaint.
Here’s the SEC’s full release — scroll down for the complaint: