SEC Charges Goldman With Fraud

Here’s what The Wall Street Journal reports:

According to the SEC, Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.

Earlier this week, I described the Magnetar Trade—the idea that a hedge fund can promote a CDO and bet against the same pool of assets. I have no idea whether the SEC’s charges involve Magnetar, but one thing is clear even now.

Other law suits will follow.

Here’s why. Magnetar was not the only hedge fund that employed a Magnetar Trade strategy. And Goldman was not the only investment bank selling CDOs assembled by hedge funds with negative bets on subprime. According to ProPublica, Magnetar promoted CDOs with nine different banks.

I bet the SEC charges more banks and names hedge funds in the weeks to come. It’s an uh-oh moment for Hedgistan and the gods of Greenwich.

Norb Vonnegut

About the author

Norb Vonnegut wrote 178 articles on this blog.

Do you ever feel the financial news makes no sense? Do stories leave you with more questions than answers? I created Acrimoney to discuss Wall Street’s behavior behind the headlines. As a veteran of a wealth management business that exceeded $1 billion in assets, I offer insight into the people and the “doings” that affect your money. I’ll start the discussion. But I hope you’ll jump in and say what you think.

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