Goldmach Sachs - Guilty of Fraud?

This is a pretty damning article. In How Goldman secretly bet on the U.S. housing crash, McClatchy sums up Goldman Sachs may be guilty of fraud.

A five-month McClatchy investigation has found that Goldman's failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws

McClatchy's inquiry found that Goldman Sachs:

  • Bought and converted into high-yield bonds tens of thousands of mortgages from subprime lenders that became the subjects of FBI investigations into whether they'd misled borrowers or exaggerated applicants' incomes to justify making hefty loans.
  • Used offshore tax havens to shuffle its mortgage-backed securities to institutions worldwide, including European and Asian banks, often in secret deals run through the Cayman Islands, a British territory in the Caribbean that companies use to bypass U.S. disclosure requirements.
  • Has dispatched lawyers across the country to repossess homes from bankrupt or financially struggling individuals, many of whom lacked sufficient credit or income but got subprime mortgages anyway because Wall Street made it easy for them to qualify.
  • Was buoyed last fall by key federal bailout decisions, at least two of which involved then-Treasury Secretary Henry Paulson, a former Goldman chief executive whose staff at Treasury included several other Goldman alumni.

It appears already large state pension funds are suing Goldman or considering action:

Several pension funds, including Mississippi's Public Employees' Retirement System, have filed suits, seeking class-action status, alleging that Goldman and other Wall Street firms negligently made "false and misleading" representations of the bonds' true risks.

Mississippi Attorney General Jim Hood, whose state has lost $5 million of the $6 million it invested in Goldman's subprime mortgage-backed bonds in 2006, said the state's funds are likely to lose "hundreds of millions of dollars" on those and similar bonds.

Hood assailed the investment banks "who packaged this junk and sold it to unwary investors."

California's huge public employees' retirement system, known as CALPERS, purchased $64.4 million in subprime mortgage-backed bonds from Goldman on March 1, 2007. While that represented a tiny percentage of the fund's holdings, in July CALPERS listed the bonds' value at $16.6 million, a drop of nearly 75 percent, according to documents obtained through a state public records request.

In May, without admitting wrongdoing, Goldman became the first firm to settle with the Massachusetts attorney general's office as it investigated Wall Street's subprime dealings. The firm agreed to pay $60 million to the state, most of it to reduce mortgage balances for 714 aggrieved homeowners.

That D.C. revolving door, will it keep Goldman Sachs from facing any serious consequence?

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Where are the RICO actions?

Moody's and Goldman Sachs. We are talking allegations of "Criminal Enterprise". It sounds like a pattern of fraud in both Moody's and Goldman Sachs.

Where is the 'disgorgement' of profits? These fines are a joke. - Financial Information for the Rest of Us.

Definition of Criminal Enterprise

The Racketeer Influenced and Corrupt Organizations (RICO) statute, or Title 18 of the United States Code, Section 1961(4), defines an enterprise as "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." - Financial Information for the Rest of Us.

RICO - Racketeer Influenced and Corrupt Organizations

Title 18 U.S.C. Chap. 86 Sec. 1961 - Definition:

“racketeering activity” means ... (D) any offense involving fraud connected with a case under title 11 (except a case under section 157 of this title), fraud in the sale of securities, or the felonious manufacture, importation, receiving, concealment, buying, selling, or otherwise dealing in a controlled substance or listed chemical (as defined in section 102 of the Controlled Substances Act), punishable under any law of the United States,

I am not familiar with the case law in this area but the language of the RICO Statute certainly sounds interesting. - Financial Information for the Rest of Us.

Personally I wouldn't go this far yet

But Congress should take up what this article discovered, no doubt about it and ask why the S.E.C. isn't investigating....and we should see what these various states do too.

I'd say that sitting in on the AIG bail out and then getting a 100% payout from AIG on CDSes is a huge issue that should be investigated at minimum.

"No one is above the law"

someone has to enforce the laws. Congress only has the power of oversight and investigate. Look at Moody's McClatchy had a report last week that showed Moody's clearly had a profit motive to commit fraud. House Oversight Committee held hearings with former Moody's employees and there is a document in the record by someone who testified warning his superiors of potential fraud and misrepresentations.

If something is uncovered someone or some entity must be held accountable.

If we want to address the huge level of cynicism and distrust of financial sector on the part of most Americans then we must pursue allegations of fraud to the fullest. - Financial Information for the Rest of Us.

I agree with you

I'm just saying is it RICO? Clearly GS needs to be investigated and prosecuted.

These token fines that are slaps on the wrist are absurd.

RICO because

it allows for the most powerful remedies including disgorgement of profits meanings someone guilty of RICO violations may be subject to giving up any profits made by those fraudulent actions. - Financial Information for the Rest of Us.