SEC Accuses Goldman Sachs of Fraud, Claims Financial Institution Failed to Disclose Conflicts of Interest

The Securities and Exchange Commission (SEC) has accused Goldman Sachs of fraud, claiming the financial institution deliberately failed to disclose conflicts of interest during its marketing of sub-prime mortgage investments just as the U.S. housing market began to collapse.

According to the SEC Goldman Sachs failed to disclose what it called “vital information” concerning a mortgage portfolio that included securities that had been chosen by a client, Paulson & Co. As one of the world’s largest hedge funds Paulson had already bet on the collapse of those securities before helping select them for the mortgage portfolio.

In disclosing the allegations the SEC said “Unbeknownst to investors, Paulson... which was posed to benefit if the (securities) defaulted, played a significant role in selecting which (securities) should make up the portfolio. In sum, Goldman Sachs arranged a transaction at Paulson's request in which Paulson heavily influenced the selection of the portfolio to suit its economic interests.”

Responding to the charges Goldman countered “The SEC's charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation.”

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