Corporate & Securities Law

Goldman Sachs Announces Profits In Face Of SEC Charges

By Mark Maddox

As predicted, Goldman Sachs announced hefty first-quarter profits of $3.5 billion. The news, which comes amid fraud charges by the Securities and Exchange Commission (SEC) that Goldman knowingly duped investors, may be good for the bank but could lend further credence to the notion of Wall Street making profits at the expense of investors.

?Their reputation is at stake. Ironically, if there was a day that Goldman Sachs wishes that their results were not so good, it?d probably be today,? said Suzy Welch, business and economic issues contributor for ABC News, during an April 20 appearance on Good Morning America. ?What makes people mad in the first place is the fact that Goldman makes so much money and perhaps profited off of other people?s suffering, and here they are making more money. Could it get more outrageous??

On the April 20 earnings call, Goldman Sachs said it was ?surprised? by the charges filed by the SEC on April 16. The focus of the SEC?s claims center on a risky mortgage product called Abacus that Goldman Sachs sold to investors but allegedly did not disclose details about another client, Paulson & Company, that helped selected the underlying securities in Abacus and then bet against it to fail.

The SEC claims that Paulson & Company made $1 billion from the deal, while investors lost billions. Goldman Sachs received $15 million as the ?middleman? of the transaction.

Also named in the SEC?s lawsuit is Goldman Sachs Vice President Fabrice Tourre. Tourre is alleged to have created and sold the product in question while knowing its risks but keeping them to himself. In a 2007 e-mail, Tourre writes the following:

?More and more leverage in the system, the whole building is about to collapse anytime now. “Only potential survivor, the fabulous Fab … standing the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!?

In addition to the SEC?s charges, the UK’s regulatory agency also plans to begin a formal enforcement investigation into another alleged fraud scheme by the Goldman Sachs that may have cost the Royal Bank of Scotland millions of dollars.

Full post as published by Representing Investors on April 20, 2010 (boomark / email).