On April 16, 2010, the SEC announced it's civil lawsuit against Goldman Sachs based on securities fraud. Accusing Goldman Sachs of lying to its investors, the SEC alleges that the investment company deliberately failed to disclose that its collateralized debt obligation packages, which relied on the performance of sub-prime residential mortgage-backed securities, had been designed to fail by hedge fund Paulson & Co., which took short positions against the mortgage securities and ultimately generated billions of dollars in profits at investors’ expense. The SEC further asserts that Goldman Sachs’ actions are in direct violation of the company’s business principals, which state that its clients’ interests always come first. The complaint filed by the SEC charges Goldman Sachs with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5.
On Friday, the news of the lawsuit instantly caused Goldman Sachs’ stock to plunge by 13%, to $166.70, destroying over $10 billion of the company’s market value. To make matters worse, Wall Street analysts predict that the SEC, after being sharply criticized for failing to uncover the causes of the financial crisis, is cracking down on companies that have a link to the mortgage crisis. In anticipation of future charges and heavy fines, analysts downgraded Goldman Sachs’ stock. Goldman Sachs issued a statement saying it would vigorously contest the lawsuit and defend the firm’s reputation. Goldman Sachs is concerned about its reputation only to others on Wall Street.
What is particularly troubling about the back dealings of Goldman Sachs is the craps game the industry played with sub-prime residential mortgages. While Goldman Sachs gambled, low-income communities suffered and continue to suffer from the foreclosure consequences of sub-prime mortgage lending. Few of us are surprised by these antics, but it sure gets me “dang” fired up when I am reminded of just how much money Wall Street makes at the misery of our communities. Where is the harm to reputation for disregarding the families facing foreclosure!