NP - US charges Goldman Sachs with fraud

[David Morris]

http://rawstory.com/rs/2010/0416/charges-goldman-sachs-fraud/

The Securities and Exchange Commission has charged investment banking
titan Goldman Sachs with civil fraud over a pre-packaged mortgage
instrument they say was designed to fail.

Goldman Sachs created the derivative -- called Abacus 2007-AC1 -- in
response to a request from a hedge fund manager who predicted that the
housing market would collapse and wanted to bet against it. The
trader, John Paulson, later earned $3.7 billion for his wager.

According to the New York Times, which first revealed details of the
Abacus case, the instrument was among 25 Goldman created so that
clients could bet against the housing market:

As the Abacus deals plunged in value, Goldman and certain hedge funds
made money on their negative bets, while the Goldman clients who
bought the $10.9 billion in investments lost billions of dollars.

Goldman let Mr. Paulson select mortgage bonds that he wanted to bet
against — the ones he believed were most likely to lose value — and
packaged those bonds into Abacus 2007-AC1, according to the S.E.C.
complaint. Goldman then sold the Abacus deal to investors like foreign
banks, pension funds, insurance companies and other hedge funds.