Goldman Case Puts Spotlight On Wall Street Bankers
SCOTT SIMON, Host:
NPR's Wendy Kaufman reports on the federal government's first major enforcement action stemming from the subprime mortgage crisis.
WENDY KAUFMAN: The complaint alleges a scheme that worked like this: Goldman created a mortgage investment deal at the request of John Paulson, a hedge fund manager who made billions betting the real estate market would tumble. Goldman let Paulson select mortgage bonds that were likely to go sour and packaged them into investments. But the foreign banks, pension funds and others who bought them were not told of Paulson's role, nor were they told that Paulson was betting against the investment.
JILL FISCH: These are pretty egregious facts in terms of the scope of the fraud.
KAUFMAN: Jill Fisch is an expert in securities regulation at the University of Pennsylvania Law School.
FISCH: According to the allegations, Goldman was manufacturing a product that it knew would fail and selling that product to investors, and that goes a lot further than the role we've understood the investment banks to have played.
KAUFMAN: Investors lost more than a billion dollars while Goldman and Paulson profited. Paulson was not charged with fraud, but one Goldman executive was: Fabrice Tourre. He allegedly played a major role in structuring and marketing the investment.
SEC: Earlier this year, the firm's chairman, Lloyd Blankfein, responded to questions not about this case but about the way Goldman marketed mortgage-backed securities. The questioner was Phil Angelides, chairman of a federal panel investigating the causes of the financial crisis.
(SOUNDBITE OF RECORDING)
PHIL ANGELIDES: Was your due diligence adequate?
LLOYD BLANKFEIN: Well, that could be...
ANGELIDES: I mean did you scour loan tapes? I guess at what point do you have a responsibility? What is the sense of responsibility?
BLANKFEIN: Well, we have a responsibility to be open and to tell people what they're having.
KAUFMAN: Nonetheless, Brad Simon, a former federal prosecutor who now defends companies accused of white collar crime, says Goldman should be worried about the SEC matter and about a possible criminal prosecution.
BRAD SIMON: I would be very concerned if I were Goldman. The fact pattern as it's been outlined in the SEC complaint is really quite extraordinary. They're so bent on making profits any way they can that they're actually putting their own clients at risk.
KAUFMAN: Wendy Kaufman, NPR News.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.