Goldman Sachs SEC Lawsuit: "The CDO Biz is Dead We Don’t Have a Lot of Time Left"


“The Commission brings this securities fraud action against Goldman, Sachs & Co. (‘GS&Co;’) and a GS&Co; employee, Fabrice Tourre (‘Tourre’), for making materially misleading statements and omissions in connection with a synthetic collateralized debt obligation (‘CDO’) GS&Co; structured and marketed to investors.” So begins the most amazing complaint to yet come out of the financial meltdown. What the SEC is doing, it seems to me, after doing their reporting, is recasting a rather common business practice as a crime-which is, quite likely, how it should have been considered all along. And the language is rough!

“As set forth above, Goldman and Tourre, in the offer or sale of securities or securities-based swap agreements, by the use of means or instruments of interstate commerce or by the mails, directly or indirectly (a) employed devices, schemes or artifices to defraud; (b) obtained money or property by means of untrue statements of material facts or omissions of material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (c) engaged in transactions, practices or courses of business which operated or would operate as a fraud or deceit upon purchasers of securities.”

We’re looking forward to someone explaining much of this to us, because it is a bit over our heads, but this grabbed us as of interest as well:

At the same time, GS&Co; recognized that market conditions were presenting challenges to the successful marketing of CDO transactions backed by mortgage-related securities. For example, portions of an email in French and English sent by Tourre to a friend on January 23, 2007 stated, in English translation where applicable: “More and more leverage in the system, The whole building is about to collapse anytime now…Only potential survivor, the fabulous Fab[rice Tourre]…standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!” Similarly, an email on February 11, 2007 to Tourre from the head of the GS&Co; structured product correlation trading desk stated in part, “the cdo biz is dead we don’t have a lot of time left.”