The SEC has alleged that Goldman Sachs and one of its vice presidents, Fabrice Tourre, defrauded investors by marketing a financial product hinged on the performance of sub-prime mortgages as the market began to falter in 2007, and failed to declare conflicts of interest.
It said Goldman Sachs did not disclose that its client, hedge fund Paulson & Co, had a significant role in the portfolio selection process and had betted against the securities, known as Abacus 2007-AC1.Goldman Sachs has strongly refuted the claims.
Despite Goldman Sachs’s shares falling over 10% on the news, it later announced that its Q1 2010 net profits were $3.46bn, double that of the same period last year and beating expectations on Wall Street.
Ray Boulger, senior technical manager for John Charcol, said: “One needs to remember that under English law, Goldman Sachs is innocent until proven guilty. I suspect it is going to be a very complex, high profile and expensive case. That is if it goes to court, as many SEC cases are settled out of court. We have to bear in mind that the transactions were between two investors, who should know what they were doing and do not need the same protection as consumers. The key thing is whether Goldman Sachs concealed information or not.”