Sunday, April 25, 2010

SEC's lawsuit against Goldman Sachs : What you need to know to understand subprime crisis and his effects (Updated 28 Apr)

Press of today dedicate a few pages to Goldman's lawsuit case everyday. But, we know what's happening?

Today post is a bit different of other day's entries. We're going to explain what's Goldman Sanchs Inc and what's going on.

What's Goldman Sachs?

Goldman Sachs Group Inc, is a business based in global investment banking and securities firm. They cover from investment banking to investment management, residential mortgage market, securities services and more financial services.

Founded in 1869, with his 'headquarters' at 200 West Street, in Lower Manhattan, NYC, provides advice in mergers and acquisitions, assets, etc and is the primary dealer in the United States Treasury security Market, and former employees served as United States Secretary of the Treasury

What's going on?

In 2010 Goldman Sachs was accused of the 2010 European sovereign deb crisis because between 1998-2009 helped the Greek government to hide their national true debt facts. In September 2009, Goldman and others created a special Credit Default Swap (CDS) index for the cover of high risk national debt of Greece, leading Greek interest-rates national bonds to a high level, sinking Greek economy to an almost bankruptcy in March 2010, when Greek government asked for an international aid, in form of a package of €45 bn. Also, SEC suit them at 16 April, 2010

What happened, step by step?

April 16:

On April 16, 2010, SEC alleged that Goldman misstated and omitted facts in disclosure documents for a synthetic CDO [A Financial security used to speculate and manage the risk that an obligation will not be paid] called Abacus 2007-AC1, where Goldman was paid approximately US$ 5 million for it's work. Securities and Exchange Commission (SEC) sued Goldman Sachs and one of it's employees, Fabrice Tourre because this . SEC based his allegation in that Goldman misrepresented that a third party, ACA, reviewed the mortgage package underlying the credit default obligations an Goldman failed to disclose to ACA that a hedge fund, Paulson & Co, that sought to short the package, had helped select underlying mortgages for the package against which it planned to bet. "Tourre also misled ACA into believing that Paulson invested $200 million in the equity of ABACUS 2007-ACI (Click here to view Abacus 2007-ACI structure) and that Paulson's interests in the collateral section preocess were aligned with ACA's when Paulson true interests were sharply conflicting", said SEC. Goldman, on the other hand, stated that the firm never represented to ACA that Paulson was to be a log investor, and that as normal business practice, market makers do not disclose the identities of a buyer to a seller and vice versa

Apparently, Paulson made a $1 billion profit from the short investments, while purchasers lost the same amount, specially their main investors, ABN Amro who lost $840,909,090 and IKB Deutsche Industriebank, $150,000,000 within months of the purchase.

After SEC announced the suit on April 16, 2010, Goldman's stock fell 13% on volume of over 102,000,000 shares, $10 billion in market value during the day session.

"The SEC’s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation" responded Goldman at their Website

April 19:

Goldman issued a statement in a public meeting in response to the suit. This divided the opinion between some who called these statements misleading and not true, while others believe that either Goldman has a strong defense or that SEC has a weak case. You can read the comment at this PDF

April 20:

First rumours about SEC second intentions spread about political motivations. While, Goldman Sachs earnings double to $3.5 bn.

April 21:

Obama denies his influence in Goldman Case and SEC's Schapiro rejected GOP claims that Democrat's agenda spurred Goldman case

April 22:

Blackstone chief defends Goldman ethics

April 23:

Disgruntled bondholders round on Goldman

April 25:

Goldman emails reveal plans to capitalise on subprime crisis , said France 24, and Business Insider offer us The juiciest Goldman Email details.

April 26:

Goldman Sachs: Trust is key to survival, says chief.The chief executive of Goldman Sachs is to tell a US Senate hearing that the firm did not mislead clients and could not survive without their trust.

A shareholder filed a lawsuit against Goldman Sachs. It's the third known case of a shareholder suing the company .

Abril 27:

First US Senate hearing. Fabrice Tourre, the big loser

April 28:

The head of the Securities and Exchange Commission said Wednesday there was no connection between the timing of the agency's fraud charges against Goldman Sachs and efforts in the Senate to speed passage of sweeping legislation overhauling financial regulation.

We'll keep this posts alive, updating it daily while, of course, keep you informed of other news. If you missed something, comment us and your question will be solved as soon we can.

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