The US Securities Exchange Commission has brought civil fraud charges against Wall Street powerhouse Goldman Sachs for betting on the failure of securities it was flogging to its own customers.
The crux of the case is an allegation that the bank created and sold a mortgage investment that was secretly designed to fail. It's claimed that the firm had John Poulson pick out what he felt were mortgage bonds most likely to fail, packaged those bonds into a product called Abacus 2007 and then flogged Abacus to Goldman customers. Apparently Goldman told investors that Abacus had been reviewed by an "independent" fund manager.
From what I've read, Goldman could be the very large tip of an even larger iceberg. A number of leading Wall Street firms are said to have done the same thing - unload bad securities to their customers and then bet, or take out credit default swaps, against what they'd just sold.
A lot of people who are seriously out of pocket today will be watching the Goldman suit very, very closely.
Betting against your clients?
It's been going on for at least four decades.
Hang 'em high!
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