Zachary A. Goldfarb, Washington Post,
Submitted by: Editor
Goldman Sachs to pay $550 Million fraud settlement
The fine is the largest the SEC has ever assessed against a financial company. But the settlement is unusual because Goldman Sachs also agreed to a host of changes to how it does business and because the bank, while not admitting wrongdoing, agreed to express "regret" for including "incomplete information" in marketing materials touting the investment to clients.
"Golly gee, we're so sorry that we purposefully mislead you in a concerted effort to steal your money." [regret]
The Fraud Charges
[WAPO] The crux of the case alleges that Paulson & Co., a hedge fund, was looking for a way to bet on a drop in the housing market and that it asked Goldman to help create a financial product that would allow such a wager. Paulson, led by hedge fund manager John Paulson, essentially bought insurance against the investment -- much like taking out an insurance policy on a person who secretly has a potentially deadly disease.
Once the foundation for the scam was in place, Paulson helped assemble that product by selecting individual securities to include in it. These were mortgage-related securities that Paulson thought were likely to lose value. The SEC claims that the fund's motivations and role were concealed when Goldman marketed and sold the investment, known as Abacus 2007-AC1, to clients who hoped it would gain value.
The investment ultimately lost virtually all its value, costing investors $1 billion.
To settle the charges, Goldman will pay $300 million to taxpayers and $250 million to two foreign banks that invested in the subprime security that the SEC alleged was designed to fail.
In response to the settlement, Goldman has promised to "change their ways". Right. Hey, I've got a surefire deal for you that will return %1000 interest...
What is conveniently overlooked is that Paulson walked away from this unbelievable scam with billions of dollars in profit. John Paulson and his company have not been brought up on any charges whatsoever.