Putting the following in plain English, buyers were allegedly sold by Goldman a portfolio of duds where the company that was going to short these duds was heavily involved in selecting them for the buyers. But Goldman told the buyers these were being selected by a different company that was by an expert, not by the company that was going to short them.
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"According to the Commission's complaint, the marketing materials for ABACUS 2007-AC1 including the term sheet, flip book and offering memorandum for the CDO all represented that the reference portfolio of RMBS underlying the CDO was selected by ACA Management LLC ("ACA"), a third party with expertise in analyzing credit risk in RMBS.
Undisclosed in the marketing materials and unbeknownst to investors, a large hedge fund, Paulson & Co. Inc. ("Paulson"), with economic interests directly adverse to investors in the ABACUS 2007-AC1 CDO played a significant role in the portfolio selection process.
After participating in the selection of the reference portfolio, Paulson effectively shorted the RMBS portfolio it helped select by entering into credit default swaps ("CDS") with GS&Co to buy protection on specific layers of the ABACUS 2007-AC1 capital structure.
Given its financial short interest, Paulson had an economic incentive to choose RMBS that it expected to experience credit events in the near future.
GS&Co did not disclose Paulson's adverse economic interest or its role in the portfolio selection process in the term sheet, flip book, offering memorandum or other marketing materials."
The above was from:
"SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 21489 / April 16, 2010
Securities and Exchange Commission v. Goldman, Sachs & Co. and Fabrice Tourre, 10 Civ. 3229 (BJ) (S.D.N.Y. filed April 16, 2010)
The SEC Charges Goldman Sachs With Fraud In Connection With The Structuring And Marketing of A Synthetic CDO"
At http://www.sec.gov/litigation/litreleases/2010/lr21489.htm
"Trader Dan's Commentary
I have often quipped that if some of these firms could make a profit betting against Granny's life tenure, they would do so.
One thing about this charge is that it will open the flood gates for additional litigation against Goldman from institutions and pension funds, etc, that purchased these products from Goldman Sachs. This is the nature of the non-transparent derivative market and the beast that it has spawned."
At http://jsmineset.com/
My comments: This news, of one of the Gold Cartel banks being charged with very serious fraud, is bullish gold, though you wouldn't think so judging by the way gold was hammered on Friday night.
As usual, when news that ultimately is massively bullish gold is released, instead of gold rising, gold is taken down and the US dollar strengthens.
Any other county's currency would be smashed to smithereeens on such news.
Jim Sinclair's emotive comments about this:
"Jim Sinclair's Commentary
If you think that Goldman's problems are not shared by the entire derivative market, you are bonkers.
If you see the Goldman situation as negative to gold you are a total fool.
If you see the Goldman situation as being bullish to the dollar, you are hopeless."
