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Wall Street giant Goldman Sachs fined 20m by UK's FSA (for fraud in marketing mortgage instruments)
BBC ^ | 09/08/2010

Posted on 09/08/2010 1:31:48 PM PDT by SeekAndFind

Wall Street giant Goldman Sachs has been fined £20m ($31m) by the UK City regulator, the Financial Services Authority, the BBC has learned.

The fine is for failing to tell the FSA it was under investigation for fraud by the US financial watchdog this summer.

In July, Goldman settled the fraud charge with the Securities and Exchange Committee by paying $550m (£356m).

The £20m is one of the heaviest fines ever imposed by the FSA, said the BBC's business editor Robert Peston.

Goldman agreed to pay the US fine to settle civil fraud charges of misleading investors.

The charges concerned the bank's marketing of complex mortgage investments, just as the US housing market faltered.

The FSA said Goldman also did not tell them that Fabrice Tourre, the trader who helped to create these mortgage derivatives, was under investigation.

(Excerpt) Read more at bbc.co.uk ...


TOPICS: Business/Economy; Culture/Society; News/Current Events
KEYWORDS: fine; fsa; goldmansachs; uk
20 million freaking pounds on Goldman Sachs !! That's it ?

Goldman Sachs' assets are worth close to $800 BILLION !!

That would be like fining me a mere $5.00 for a traffic violation.

1 posted on 09/08/2010 1:31:52 PM PDT by SeekAndFind
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To: SeekAndFind

Exactly. The fines levied by the SEC, FSA, et al, are not enough to cause them to change their behavior. The fines need to be so large that they cause a material adverse impact to their bottom line for at least two quarters - something so large that it will downgrade the bonus payouts for the year.

I’d reckon that the fines need to be on the order of $8 to 10 *b*illion to make this happen.


2 posted on 09/08/2010 1:34:03 PM PDT by NVDave
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To: SeekAndFind

So, what’s your point? GS is fined for telling the UK FSA what’s in the news all over the world. I’d flood their mailbox with 50lbs. of crap a day to let them know what’s going on.


3 posted on 09/08/2010 1:35:17 PM PDT by BipolarBob (Even the earth is bipolar.)
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To: SeekAndFind; NVDave

What did GS do that was so wrong? Give me a clue here other than they are a big successful company.


4 posted on 09/08/2010 1:36:56 PM PDT by BipolarBob (Even the earth is bipolar.)
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To: BipolarBob

RE: What did GS do that was so wrong? Give me a clue here other than they are a big successful company.


Other than the GENERAL accusation written in the article ( i.e., fraud in marketing mortgage instruments ), I can’t tell you the details.

Of course the FSA isn’t going to day — we are fining you because you are rich and can afford it.

But if they can’t back up their claims of fraud with evidence, that’s what it will essentially amount to.


5 posted on 09/08/2010 1:45:26 PM PDT by SeekAndFind
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To: NVDave

RE: Exactly. The fines levied by the SEC, FSA, et al, are not enough to cause them to change their behavior


My bet is that the FSA can’t prove their fraud case ( I looked at the SEC’s case against Goldman and all evidence tell me that Goldman COULD NOT HAVE committed fraud at all. The losers on that deal were BIG GUNS in the financial world who knew what they were getting into ).

But even if the FSA can’t prove a thing, I am willing to bet that Goldman will just give them the 20 million to get off their backs.

After all, if some government bureaucrat is going to demand that I pay him $10.00 or else, I am going to calculate that it would be better off to give him the money rather than waste my time in court.

Is this extortion ? Your opinion is as good as mine.


6 posted on 09/08/2010 1:50:15 PM PDT by SeekAndFind
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To: BipolarBob

The charges go back to the Abacus transaction GS did on real estate mortgage instruments.

Rather than me typing in reams of explanation, I’ll give you a link to the summary of the SEC’s case against GS and if you have questions on the issues, I can explain:

http://www.sec.gov/news/press/2010/2010-123.htm

Therein, read the complaint:

http://www.sec.gov/litigation/complaints/2010/comp21489.pdf

Basically, once Goldman admitted that they had omitted Paulson’s role in selecting the CDO’s for the index they were creating, they had a clear-cut violation of SEC full disclosure regulations. Paulson cherry-picked the CDO’s in the portfolio because Paulson knew there were going to be huge losses on this CDO index. Goldman then went out and sold the long side of this index of CDO’s without telling the long client that the short client who requested the instrument be created in the first place did so with the explicit intention of shorting it.

The violation is very clear-cut to me. Goldman failed (deliberately) to disclose the intent of Paulson to go short on the instrument to both the supposed “referee” (ACA) as well as the buyer of the long side. Saying “Well, Paulson helped select the CDO’s in the synthetic instrument” tells people one thing. Saying “Well, Paulson helped select the CDO’s in this synthetic instrument because he a) wanted an instrument to go short, and b) he has every intention of going massively short on this instrument” says something very, very different to a long-side buyer.

As a result of the SEC’s case, Goldman admitted that they failed to disclose. By admitted this, the floodgates are now opened. This won’t be the last case against Goldman.

Conservatives need to stop thinking that every action against Wall Street is “government interference.” The unvarnished truth is that Wall Street is as corrupt as the unions and the mob are, and they’re even now performing the single greatest theft in the history of mankind.


7 posted on 09/08/2010 2:03:16 PM PDT by NVDave
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To: SeekAndFind

Goldman committed fraud, plain and simple. They failed to disclose Paulson’s short position and Goldman *knew*, prior to the creation of the Abacus instrument, that Paulson was going to go short. They knew this when they accepted Paulson’s “suggested” CDO’s to include in the synthetic. They failed to tell either ACA or the long-side clients that the person taking the short side a) was the reason why the instrument existed at all and b) that the short side client had a hand in selecting the underlying instruments for the synthetic.

Goldman, in the settlement, said:

“Goldman acknowledges that the marketing materials for the ABACUS 2007-ACI transaction contained incomplete information. In particular, it was a mistake for the Goldman marketing materials to state that the reference portfolio was “selected by” ACA Management LLC without disclosing the role of Paulson & Co. Inc. in the portfolio selection process and that Paulson’s economic interests were adverse to CDO investors. Goldman regrets that the marketing materials did not contain that disclosure.”

Now, that’s nice, neutral language, but it is a clear-cut admission that they knew material information that they failed to disclose to clients, as required by the SEC under 10(b)5. That’s fraud, by the book.

The SEC has not withdrawn any of their allegations of fraud in the original complaint. The Goldman settlement did not calm any of those claims either. The SEC could still develop a fraud case against Goldman. But the admission that they failed to meet 10(b)5 regulatory requirements is the thin edge of the wedge. There will be civil cases brought by victims of Goldman’s mendacity going forward as a result of the settlement, even if the SEC chooses to not pursue this any further.

The reputation damage to Goldman was severe.


8 posted on 09/08/2010 2:18:57 PM PDT by NVDave
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To: NVDave

It is up to the buyer to do due diligence in researching whether any offer is to their taste. In the named case the buyers were either naive or careless. The CDO package was extremely risky. GS will sell you however much risk you are willing to take. More risk means more rewards IF you are correct in your fortunetelling. If one is hedging long or short, it is implied there is a buyer on the other side of the equation. Again if I were GS, to cover my bases I would inundate each customer, government entity and any other person involved with my business with an extreme amount of information because apparently we can’t assume anybody knows anything anymore.


9 posted on 09/08/2010 2:31:33 PM PDT by BipolarBob (Even the earth is bipolar.)
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To: NVDave

Here’s the question :

Did Goldman Sachs not allege that ACA (And their partner IKB) KNEW the instruments that were going to be part of the ABACUS deal and had a hand in structuring that deal as well ?

In other words,ACA was well informed as to the collateral in the CDO, and in fact selected the collateral with Paulson.

Did Goldman Sachs not allege that if their intent was to defraud ACA, they would not have joined them in the long side of the deal ( they claimed that they themselves LOST MONEY to the tune of $94 Million on this CDO ).

According to this article :

http://www.realclearmarkets.com/articles/2010/04/23/dont_falsely_blame_goldman__paulson_98434.html

On January 2007 Goldman approached ACA and proposed that it serve as the ‘Portfolio Selection Agent’ for a CDO transaction sponsored by Paulson. ACA previously had constructed and managed numerous CDOs for a fee and as of December 31, 2006, had closed on 22 CDO transactions consisting of $15.7 billion of assets.

On January 9, 2007, Goldman sent to ACA a list of 123 RMBS selected by Paulson. About the selections, an ACA analysis showed that it had previously purchased 62 of the securities on Paulson’s list.

On January 22, 2007, ACA sent an email listing 86 sub-prime mortgage positions for the fund. Of the 123 positions that were originally selected by Paulson, ACA rejected all but 55.

On February 2, 2007, ACA emailed Paulson and Goldman a list of 82 RMBS on which Paulson and ACA concurred. Finally, on February 26, 2007, Paulson and ACA came to an agreement on a reference portfolio of 90 RMBS for ABACUS 2007-AC1.

Clearly ACA had the opportunity to review and select all the securities, which indicates that neither Paulson nor Goldman can be blamed for the fact that ACA simply made a bad investment or failed to perform adequate diligence

IN OTHER WORDS :

Both Goldman Sachs and John Paulson entered into this much discussed investment opportunity to maximize value for their respective constituents, which is what participants in a free market capitalist economy should do. In this transaction, Goldman Sachs’s duty was to serve as a market maker whose job was to structure and execute a transaction to meet multiple client needs. Goldman did just that.

Paulson & Co.’s role was to act as a responsible fiduciary for its investors and earn a desirable return, which it did. ACA and IKB have a customer mandate to earn an appropriate return as well.

In this case, however, ACA and IKB’s investment selections resulted in approximately $1 billion in losses. Whether those losses were the result of poor investment selection or inadequate due diligence, neither Goldman Sachs nor Paulson & Co. is to blame. As such, it’s irresponsible and deceptive for the SEC, the media and politicians to hold Goldman and Paulson accountable.


10 posted on 09/08/2010 2:32:29 PM PDT by SeekAndFind
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To: BipolarBob

>>Give me a clue

Clue

11 posted on 09/08/2010 2:36:50 PM PDT by LomanBill (Animals! The DemocRats blew up the windmill with an Acorn!)
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To: SeekAndFind
Goldman Sachs' Political Contributions Over the Years

12 posted on 09/08/2010 2:42:36 PM PDT by csmusaret (The Obama/Pelosi/Reid Cartel has saddled each of my grandchildren with a $44,000 debt.)
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To: csmusaret

RE: Goldman Sachs’ Political Contributions Over the Years


Boy, they’re getting stingier in their contributions after the subprime debacle. I wonder why...


13 posted on 09/08/2010 2:44:17 PM PDT by SeekAndFind
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To: SeekAndFind

Goldman did not disclose that Paulson a) had asked for this instrument to be created so that he could b) short the instrument, and he was going to short the instrument.

That’s material information. It was not disclosed, per SEC requirement in SEC 10(b), in particular 10(b)5-2.

Everyone who is flapping their arms and pointing at how much Goldman had of their deal, etc.... it simply blowing smoke. There was a material fact (several material facts) that Goldman did not disclose to ACA and the long-side clients of the deal. That’s a violation of 10(b). Period, full stop.


14 posted on 09/08/2010 2:51:32 PM PDT by NVDave
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To: BipolarBob

Yes, a buyer needs to do due diligence. However, there are requirements per the SEC:

http://taft.law.uc.edu/CCL/34ActRls/rule10b-5.html

In particular the -2 clause:

” To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or”

“To omit to state a material fact necessary...”

It is a little difficult to perform due diligence when you’re not being given all the information.

So let’s put it to you this way:

You’re being pitched some high-risk investment in residential mortgage debt.

You’re told:

a) that Goldman created this synthetic to provide exposure to a wide variety of RMBS CDO’s in the highest-growth states of the US RMBS market,

or

b) all of (a), AND that Paulson has asked for this instrument to be created explicitly so that he could short it, and (c) that he had suggested a series of RMBS CDO’s, many of which were included in the portfolio created by ACA.

I’m a pretty sophisticated investor, and if I were being pitched some instrument and in the fine print it included the information that Paulson was short the position, it certainly would make be re-consider going long.


15 posted on 09/08/2010 3:09:33 PM PDT by NVDave
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To: BipolarBob

Yes, a buyer needs to do due diligence. However, there are requirements per the SEC:

http://taft.law.uc.edu/CCL/34ActRls/rule10b-5.html

In particular the -2 clause:

” To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or”

“To omit to state a material fact necessary...”

It is a little difficult to perform due diligence when you’re not being given all the information.

So let’s put it to you this way:

You’re being pitched some high-risk investment in residential mortgage debt.

You’re told:

a) that Goldman created this synthetic to provide exposure to a wide variety of RMBS CDO’s in the highest-growth states of the US RMBS market,

or

b) all of (a), AND that Paulson has asked for this instrument to be created explicitly so that he could short it, and (c) that he had suggested a series of RMBS CDO’s, many of which were included in the portfolio created by ACA.

I’m a pretty sophisticated investor, and if I were being pitched some instrument and in the fine print it included the information that Paulson was short the position, it certainly would make me re-consider going long.


16 posted on 09/08/2010 3:09:50 PM PDT by NVDave
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To: NVDave
"I’m a pretty sophisticated investor, and if I were being pitched some instrument and in the fine print it included the information that Paulson was short the position, it certainly would make be re-consider going long."

Thank you for your reply. I am not a sophisticated investor. I admit I struggle at times to scratch out a profit. I did watch the senate proceedings and thought Blankfein did an excellent job defending his company. If indeed it was required to provide certain information I am at a loss as to why they did not. That's not good business. Unsustainable. Hopefully GS will do the right thing in the future. I don't own any of their stock btw.

17 posted on 09/08/2010 4:16:31 PM PDT by BipolarBob (Even the earth is bipolar.)
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To: SeekAndFind

It sounded like a lot, until I read your post. Sigh. And I can tell you that to ‘absorb’ a fine like that, little people who do the regular, day to day, behind the scenes work for them, the secretaries, assistants, smaller offices all with smaller salaries, will be handed pink slips, to save on ‘overhead’ and absorb the unexpected expense.


18 posted on 09/08/2010 5:26:04 PM PDT by fortunecookie (Please pray for Anna, age 7, who waits for a new kidney.)
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