* By NPR Staff and Wires NPR *
The government has accused Goldman Sachs & Co. of defrauding investors by failing to disclose conflicts of interest in mortgage investments it sold as the housing market was faltering.
The Securities and Exchange Commission announced Friday civil fraud charges against the Wall Street powerhouse and one of its vice presidents. The agency alleges Goldman failed to disclose that one of its clients helped create — and then bet against — subprime mortgage securities that Goldman sold to investors.
Investors in the mortgage securities are alleged to have lost more than $1 billion, the SEC noted. The agency is seeking to recoup profits reaped on the deal.
“The product was new and complex but the deception and conflicts are old and simple,” Robert Khuzami, the SEC’s director of enforcement, said in a statement. “Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party.”
The Goldman client implicated in the fraud is one of the world’s largest hedge funds, Paulson & Co., which paid Goldman roughly $15 million for structuring the deals in 2007.
Read more at SEC Says Goldman Sachs Defrauded Investors : NPR.