Several investment banks are under investigations of the SEC in an effort to find out more about the recent subprime mortgage crisis which caused the recession in US.
Among these investigations, SEC recently brought an allegation to public attention against top investment bank Goldman Sachs. Apparently, Goldman Sachs is involved in a fraud in the recently subprime mortgage crisis by selling mortgage-backed securities before the financial crisis struck.
Securities and Exchange Commission charges against Goldman Sachs relate to the so-called collateralized debt obligations — complex securities tied to the performance of subprime mortgages. It was said that hedge fund Paulson & Co. , through its founder John paulson, helped Goldman Sachs structure the deal and then bet against it, making huge profits when the housing market fell in 2007.
Unfortunately, Goldman Sachs did not disclose these information to its various investors. However, John Paulson himself was not involved in the case filed by SEC against Goldman Sachs in Manhattan because it wasn’t obligated to disclose conflicts to investors.
According to Robert Khuzami, the SEC’s director of enforcement: “”We charged those that we felt were appropriate based on the evidence. Goldman made representations to investors, and Paulson did not.
Goldman Sachs replied to these allegations telling that they did not commit any fraud. They said that SEC’s fraud allegations are completely unfounded in law and fact and that they will vigorously contest them and defend the firm and its reputation.