Markets fall on Goldman Sachs fraud charge
Friday, April 16, 2010
Financial markets sold off Friday after the U.S. Securities and Exchange Commission charged Wall Street giant Goldman Sachs & Co. with civil fraud. The Dow Jones Industrial Average closed down 126 points, or more than one per cent, at 11,019. In Toronto, the S&P/TSX composite index gave up 150 points, to close at 12,061. The U.S. government has accused the investment bank of defrauding investors in its disclosures about securities it sold tied to subprime mortgage securities (also called exotic loans or exotic mortgage) as the housing market was faltering. The bank issued loans to individuals who couldn’t pay back the loans or borrowers whose credit history is not sufficient or even has no credit history to pay off the principal. The subprime mortgages often offer interest only loans (the borrowers pays only the monthly fixed interest rates), that are easier to afford and pay off. Goldman Sachs shares finished lower by $23.57 US on the New York Stock Exchange, down 13 per cent at $160.70.
The SEC( Securities and Exchange Commission) said that the investment bank failed to disclose that one of its clients, the giant hedge fund Paulson & Co., helped Goldman Sachs create — and then bet against — subprime mortgage securities that Goldman sold to other investors. Two European banks that bought the mortgage securities lost nearly $1 billion, the SEC said.
Alleges Paulson paid Goldman $15M
The SEC charged that Paulson paid Goldman $15 million US in 2007 to create the portfolio that was tied to mortgage-related securities the hedge fund viewed as likely to decline in value. Separately, Paulson took out a form of insurance that allowed it to make a huge profit when those securities became nearly worthless. The SEC charged that Paulson paid Goldman $15 million US in 2007 to create the portfolio that was tied to mortgage-related securities the hedge fund viewed as likely to decline in value.
Read more: http://www.cbc.ca/money/story/2010/04/16/sec-charges-goldman.html#ixzz0lYh0Yyr7