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Goldman Sachs Fraud Lawsuit: An Overview Of The Latest News

First Posted: 06/16/10 06:12 AM ET   Updated: 05/25/11 05:10 PM ET

This morning, the SEC announced that it is suing Goldman Sachs and one of its employees for fraud. Pointing to the 2007 creation of a complicated bundle of toxic mortgage securities, the government's lawsuit contends that Goldman knowingly sold the product to investors while separately betting that the bonds that made up the bundle would default.

Below is a quick overview of the SEC's charges against Goldman, the characters involved, and what it all could mean:

Abacus 2007-AC1
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The lawsuit is centered around the financial instrument Abacus 2007-AC1, a complex package of securities derived from low-quality mortgage bonds. The bundle was created at Goldman Sachs in February 2007 and marketed to Goldman clients, but according to the SEC, Goldman and some other clients (including billionaire hedge-fund manager John Paulson) simultaneously bought insurance on the risky product. Meanwhile, Goldman allegedly told potential investors that the bonds in the instrument would be chosen by an independent portfolio manager, never mentioning that they were actually picked by Paulson, who had a strong interest in the product's failure.

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Filed by Grace Kiser  |