Goldman Sachs Deceived Investors/SEC by Dumpling/Selling Mortages

McClatchy's 2010 Pulitzer finalist

McClatchy reporters Greg Gordon, Chris Adams and Kevin G. Hall were named 2010 Pulitzer Prize finalists for examining Wall Street's role in the nation's financial collapse.

Goldman Sachs Deceived Investors by Selling Mortgage Securities While Dumping $40 Billion of Its Own Portfolio and Illegally Took 9 Months to Notify SEC

Tags: Goldman Sachs Deceived Investors/SEC, Mortgage Securities, Selling Started Dec 2006, Fraud?, Keeps Customers?,

Goldman Sachs basically did what Wall Street usually does. After a large run up in stocks and the market, they keep recommending the same stocks/Risky Mortgage Derivatives which have been priced at where they expect the stocks to be one year from now, and like Lemmings or herd instinct lots of investors buy and the public comes in late as usually to see the market go down as it is happening now. But Goldman Sachs apparently got too greedy.

Wall Street commits fraud all the time, but most of the time, the penalty is down-played and they just pay a fine which is substantially less than their profits from the crimes. No one usually goes to jail. I say put these guys in Attica with the lesser criminals.

Jim Kawakami, June 05, 2010, http://jimboguy.blogspot.com

By Greg Gordon and Chris Adams | McClatchy Newspapers

WASHINGTON — In December 2006, Goldman Sachs embarked on a frantic effort to shed billions of dollars in risky mortgage securities and purchase exotic insurance to protect itself against what it had concluded could be the collapse of America's housing market.

Yet for nine months, until Sept. 20, 2007, the Wall Street giant didn't disclose its actions in key filings with the Securities and Exchange Commission, in telephone conferences with analysts or in its press releases.

A McClatchy review of hundreds of pages of subpoenaed company records released by a Senate panel Tuesday, as well as Goldman's SEC filings, has revealed how closely the company guarded its secret exit plan.

Goldman's failure to tell the investors who bought its risky mortgage securities that it had made an array of wagers against housing is at the heart of the furor now enveloping the nation's premier investment house, the only major Wall Street firm to exit the subprime mortgage market with minimal damage.

By the time Goldman finally began to divulge its strategies to the SEC, credit markets were freezing up and the investment bank was well on its way to making billions of dollars in revenue from its negative bets, known in the industry as "shorts."

Consider this contrast between the firm's public face and its private maneuvering.

On March 7, 2007, Goldman's chief financial officer, David Viniar, chaired an internal meeting of the company's risk committee. Notes of the meeting report that the committee discussed the "accelerating meltdown" among subprime mortgage lenders, the progress of the company's mortgage division in "closing down every subprime exposure possible" and signs that subprime woes were beginning to affect commercial real estate.

Sheara Fredman, a vice president in the company's finance division, also sent Viniar "talking points" in advance of the firm's quarterly earnings announcement stressing that that its short bets had enabled Goldman's mortgage division to earn $266 million during the quarter despite the deteriorating subprime market. …

SEC disclosure rules revolve around the idea that information that's "material" to a company's or an investment's fortunes should be disclosed, but it's not clear whether Goldman will face legal liability for choosing not to reveal its exit plan to its shareholders, who benefited from the strategy.

However, Goldman's limited disclosures in the offering circulars it gave the investors that bought its mortgage securities could cause legal problems.

At issue is whether Goldman's bets against the housing market were so "material," or relevant to investors, that their disclosures could have convinced them not to buy its products. Without purchasers for its risky securities, Goldman's exit strategy would have flopped.

During the March 13 conference call with analysts, however, Viniar made no mention of Goldman's short bets or the $266 million gain. Instead, he said the market had seen "a little bit of nervousness" but the housing weakness had been "so far largely contained." …

The newly released Goldman records show that it executed the strategy by:

_ Selling bundles of securities in the Cayman Islands. At least 16 of these deals included exotic bets on subprime securities in which Goldman would profit if the underlying loans defaulted. Goldman stood to make $2 billion if one deal, known as Hudson Mezzanine SP, cratered. The securities initially received the top investment-grade rating of Triple A on Dec. 27, 2006, but had been reduced to junk status on July 31, 2008.

_ Using swaps to make short bets on companies tied to the housing market. According to a person familiar with these bets, Goldman wagered against: Washington Mutual, Inc., which later collapsed in the biggest bank failure in U.S. history; Countrywide Mortgage, Fremont General Corp. and National City Corp., subprime lenders that failed, and Wall Street investment banks Bear Stearns and Merrill Lynch, both of which were rescued by taxpayers after running up huge mortgage debt.

Making huge short bets by buying swaps on a subprime index on the private London exchange that it helped create and profiting when defaults rose in a basket of 20 subprime mortgages. … http://www.mcclatchydc.com/2010/04/30/93252/goldman-sought-to-shed-risky-mortgage.html Read more: http://www.mcclatchydc.com/2010/04/30/93252/goldman-sought-to-shed-risky-mortgage.html#ixzz0q0NMk4Of