The case against Goldman Sachs: If it is true...
23 April 2010
I have read all 23 pages of the SEC complaint. If it is proved to be true then Goldman has acted in an unethical, unsavoury and underhand way. And that is being charitable, writes CNN anchor and correspondent Richard Quest in an exclusive column to domain-b.
The allegations made on Friday against Goldman Sachs in the US are amongst the most serious that can be imagined.
The SEC is charging the well known bank with engaging in a conflict of interest, which cost investors a billion dollars.
What did they do? The deal concerns poor quality home loans in the United States and is full of complicated ideas like CDOs, CDSs Abacus Super Senior Tranches and so on.
Forget all that jargon. Strip it to basics and it is very simple:
Goldman put together a barrel of apples and allegedly allowed a hedge fund, called Paulson, to stuff the barrel full of rotten apples. Goldman - so the SEC says - then sold the barrel to investors as perfectly good fruit.
Worse. The charge is that they did so knowing that Paulson was taking out insurance against the rot spreading and the lot going bad. Sure enough, when the barrel of apples went rotten, the investors were left with worthless fruit, and Paulson got paid out the insurance.