So the SEC says Goldman Sachs defrauded Its own investment ‘clients’ and cooperated with Paulson & Co to effectively weight the bets against them — bundling bad debt then betting against the bundle.
Engineering failing investments to sell to ‘the little people’, retail investors or ‘pigs’ is a time-honoured (but dishonourable) tactic on Wall St. (See Liar’s Poker by Michael Lewis.)
So much so that there’s a ghastly saying about the sharemarket:
“The pigs go to the Market to get slaughtered.”
It’s ugly but it’s true.
The extension of the definition of ‘pigs’ to include these victims (below) is a development…
Goldman told investors that the bonds would be chosen by an independent manager. In the case of Abacus 2007-AC1, however, Goldman let Mr. Paulson select mortgage bonds that he believed were most likely to lose value, according to the complaint.
Goldman then sold the package to investors like foreign banks, pension funds and insurance companies, which would profit only if the bonds gained value. The European banks IKB and ABN Amro and other investors lost more than $1 billion in the deal, the commission said.
“Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio,”
— SEC statement quoted in NY Times
Note, like the Lombard charges, these are ALLEGATIONS at this stage.