In April, US Attorney Preet Bharara took Goldman Sachs to court over some of the AAA-rated shit mortgage-backed securities from which the investment bank made billions. Now the investigation widens with charges of insider trading.
The case that SEC is mounting is against Goldman Sachs and one of its employees Fabrice Tourre for, amongst other things, “making materially misleading statements and omissions in connection with a synthetic collateralized debt obligation (“CDO”) GS&Co structured and marketed to investors.”
The complaint does not include, however, John Paulson, founder of the hedge fund Paulson & Co., a principle actor in the CDO’s that brought the economy to its knees. Paulson was instrumental in organizing a mortgage-backed securities fund for Goldman, selling the crap to investors with the help of Tourre and insuring any possible losses with AIG, for instance (which became insolvent).
Yesterday, the FBI raided three hedge fund offices: Diamondback Capital and Level Global Investors of Connecticut, and Loch Capital, which has its offices in Boston. This is all part of an effort by US Attorney Preet Bharara of the Southern District of New York to prosecute those involved in shady Wall Street business practices (quite a task). The clock’s now running on Bharara, however, because unless he is squeaky clean, corporate and banking agents are surely digging up dirt so he’ll suffer a fall akin to Elliot Spitzer‘s.
According to Bloomberg Businessweek, bank shares all declined in the wake of the FBI raids, with shares of Goldman dropping 3% yesterday as the federal investigation widened. It’s rather nice to see some action on the part of the government, while bankers and investors run for the hills. Part of the scare has to do with rumors that Goldman Sachs leaked insider information to investors just before the mortgage securities crash (is anyone surprised any longer?).
And while nobody can be certain that Goldman Sachs won’t be able to weasel its way out of this scandal, it really is quite nice to see the pigs squealing.
