SEC Charges Goldman, Sachs & Co. and a Goldman V.P. with Securities Fraud; Hedge Fund Manager Paulson & Co. Named in Complaint, But Not Charged with Any Violation of Law or Regulation

On April 16, 2010, the Securities and Exchange Commission charged Goldman, Sachs & Co. (Goldman Sachs) and one of its vice presidents with defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter.  See SEC v. Goldman Sachs & Co. and Fabrice Tourre, S.D.N.Y.  The SEC’s complaint alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO), the performance of which depended on the performance of subprime residential mortgage-backed securities.  Goldman Sachs allegedly failed to disclose to investors material information about the CDO, in particular the role that Paulson & Co., a significant hedge fund manager, played in the portfolio selection process and the fact that a Paulson fund had taken a short position in credit default swaps against the CDO.  On CLOs, a type of CDO, see “Key Legal and Business Considerations for Hedge Fund Managers When Purchasing Collateralized Loan Obligation Management Contracts,” Hedge Fund Law Report, Vol. 3, No. 13 (Apr. 2, 2010).

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