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SEC Accuses Goldman Sachs of Civil Fraud

Friday, April 16, 2010

The Securities and Exchange Commission has brought civil fraud charges against the investment bank Goldman Sachs. The suit alleges Goldman misled its investors about the origin and safety of a financial product in 2007.

A Goldman vice president, Fabrice Tourre, is also charged.

The government says the 31-year-old Tourre designed a type of investment vehicle known as a collateralized debt obligation, or CDO, with risky mortgages as collateral.

The SEC says Goldman misled investors by telling them an independent third party selected the mortgage bonds in the instrument.

Tourre allegedly failed to inform investors the CDO was designed at the request of a hedge fund client, John Paulson of Paulson & Company, which planned to bet against the CDO.

Paulson made about $1 billion from the deal, with investors losing the same amount. Paulson is not charged in today's complaint. It's one of the few firms to win acclaim for predicting the mortgage meltdown.

Goldman Sachs says it will "vigorously contest" the charges. In a statement, the investment bank says the accusations are "completely unfounded in law and fact."

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