SEC charges Goldman Sachs with Fraud

The Securities and Exchange Commission filed its first big lawsuit over alleged Wall Street shenanigans. The SEC charges that Goldman Sachs gave special attention to one client, at the expense of hundreds of others. Mitchell Hartman reports: The Goldman Sachs VP at the center of the alleged fraud was Fabrice Tourre. The SEC says he let the hedge fund Paulson & Co. influence the structure of an investment called a “synthetic collateralized debt obligation.” Karen Petrou of Federal Financial Analytics says it’s one of the most complicated investments out there. Karen Petrou: I think you need to be at a cocktail party to think you understand collateralized debt obligations, or CDOs. At its heart, though, a synthetic CDO is simply a pool of mortgages. Paulson saw many of these mortgages were subprime, or pretty dicey. And yet the bonds based on them were still being given the gold seal of approval by rating agencies. Paulson selected the investments it thought were most likely to go bad. It asked Tourre to fill up one of those synthetic CDOs with them. And then Goldman sold those mortgage-backed bonds to its clients.

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