Goldman Sachs, VP Fabrice Tourre, Charged with Fraud by SEC Over Product to Hedge Against Housing Losses

Goldman Sachs and vice president Fabrice Tourre charged with fraud by the SEC of fraud over product it peddled to hedge against housing losses.

Why am I not surprised that Goldman Sachs was up to no good. The U.S. Securities and Exchange Commission has charged the company and one of its employees (vice president Fabrice Tourre) with fraud, alleging the company omitted key information about a product it peddled to hedge against housing losses. Hey, funny, my mortgage company, Litton Loan (bottom feeder) is owned by Goldman Sachs. Of course, that news just took the wind out of the financial sector of the stock market.

In its complaint, the SEC alleges that Goldman failed to tell investors in a collateralized debt obligation that a major hedge fund that helped choose the portfolio had also placed bets against it.

As part of the complaint, the SEC alleges that one of the world's largest hedge funds, Paulson & Co., paid Goldman to structure a product that would allow the fund to take a short position against mortgage-backed securities chosen by Paulson based on the fund's belief that the value of the securities would fall.

The complaint also names Goldman vice president Fabrice Tourre, who it alleges was responsible for structuring the financial product. Tourre allegedly knew of Paulson’s short position on the product, known as ABACUS.

"Tourre structured the transaction, prepared the marketing materials, and communicated directly with investors," the SEC release announcing the charges said. "Tourre allegedly knew of Paulson & Co.'s undisclosed short interest and role in the collateral selection process." Source: CNN

Let's turn to Treasury Secretary Timothy Geithner. I have to wonder what his role in this Goldman Sachs mess is, especially since he played a supporting role to Henry Paulson, former CEO of Goldman Sachs, in the decision to bail out AIG shortly after deciding to kick Lehman Brothers to the curb and into bankruptcy.

The reality is, if the average person on the street engaged in such fancy financial shenanigans, he or she would be behind bars. That's exactly what Fabrice Tourre and his cohorts should face.