The SEC has landed on Goldman Sachs, an event that makes this a great Friday.
The heroine of this tale is Mary Shapiro, the 29th Chairman of the U.S. Securities and Exchange Commission, who received unanimous confirmation from the Senate.
The SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.
“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.” [...]
Goldman’s stock price fell sharply after the news. The Wall Street firm’s share price was down more than 14% in midday trading. – Wall Street Journal
Cry me a river.