After the SEC accused it of securities fraud related to subprime mortgages, Goldman Sachs promised to "contest them and defend the firm and its reputation," saying the charges were "unfounded in law and fact." The SEC claims that Goldman, as the Wall Street Journal puts it, "deceiv[ed] clients by selling them mortgage securities secretly designed by a hedge-fund firm run by John Paulson, who made a killing betting on the housing market's collapse."
Paulson, who made a $1 billion after the collapse, was not charged, because he didn't misrepresent investors. Paulson's spokesman said, "While it’s unfortunate that people lost money investing in mortgage-backed securities, Paulson has never been involved in the origination, distribution or structuring of such securities... There’s no question we made money in these transactions. However, all our dealings were through arm’s-length transactions with experienced counterparties who had opposing views based on all available information at the time." (You can read the pitch book for the collateralized debt obligation, Abacus, that was created.)
Fabrice Tourre
One person the suit did name was Goldman vice president Fabrice Tourre, who helped design the mortgage investment that the SEC says "was secretly intended to fail." In a January 2007 email to a friend, he wrote, "More and more leverage in the system. The whole building is about to collapse anytime now ... Only potential survivor, the fabulous Fab[rice Tourre] ... standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implication of those monstruosities [sic]!!!"
The Post spoke to Tourre's former super on East 10th Street: "He didn't associate with others in the building. He had a lot of loud parties that would disturb the neighbors below him," but the apartment wasn't flashy, "He was cheap. He didn't spend much money."
Bloomberg News reports that Goldman was warned that the SEC wanted a bring a case nine months ago, raising questions whether they should have told stockholders about it. Business Insider's Henry Blodget thinks the case against Goldman is weak, but does think the case against Tourre is stronger, though "not a slam dunk." And Matt Taibbi, the Rolling Stone contributing editor who described the firm as a "great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money" discussed the charges yesterday (video ) and pointed out the Times mentioned how banks like Goldman bundled bad debt and won back in December.
