Senate Probe Reveals Goldman Sachs' Scheme to Defraud Investors in the Sale of Toxic Securities
The Associated Press is reporting that a Senate probe has determined that Goldman Sachs implemented a strategy to profit from the housing meltdown and reap billions at the expense of clients.
Top Goldman executives were involved in the scheme that misled investors in toxic mortgage securities, according to the article. Senate investigators point to e-mails and other Goldman documents obtained in an 18-month investigation. Excerpts from the documents were released Monday, a day before Goldman CEO Lloyd Blankfein and other top Goldman executives are scheduled to testify before Congress.
Earlier this month, the SEC filed an enforcement action against Goldman, alleging it fraudulently misled investors in a CDO called Abacus by failing to disclose the important fact that the underlying securities were selected in part by a hedge fund client, Paulson & Co., that stood to gain if the securities declined in value.
Sen. Carl Levin, D-Mich., chairman of the Senate Permanent Subcommittee on Investigations, was quoted as saying: "I think they're misleading the country. ... There's no doubt they made huge money betting against the (mortgage) market." Levi added: Goldman "knew of Paulson's involvement in the selection" of securities, Levin told reporters. "They knew Paulson was going short."
One December 2006 email uncovered by Senate investigators reads: "Need to decide if we want to do 1-3 (billion) of these trades for our book or engage customers." On one group of securities, "I'd say we definitely keep for ourselves. On (another), I'm open to sharing to the extent that it keeps these customers engaged with us."
Levin reportedly said that emails show Goldman shifted in early 2007 from neutral to a short position, betting that the mortgage market was likely to collapse. "That directional change is mighty clear," Levin said. "They decided to go gangbusters selling those securities" while knowing they were toxic.
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