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Saturday, April 17, 2010

JURIST - Paper Chase: SEC charges Goldman Sachs with securities fraud

JURIST - Paper Chase: SEC charges Goldman Sachs with securities fraud
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Friday, April 16, 2010

SEC charges Goldman Sachs with securities fraud
Steve Dotterer at 2:17 PM ET

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[JURIST] The US Securities and Exchange Commission (SEC) [official website] filed a civil suit [complaint, PDF] on Friday alleging securities fraud against Goldman, Sachs & Co. [corporate website]. The complaint, filed in the US District Court for the Southern District of New York [official website], alleges that Goldman made misleading statements and omissions to investors in early 2007 in violation of the Securities Act of 1933 [text, PDF] and Securities Exchange Act of 1934 [text, PDF]. Goldman's alleged conduct in marketing collateralized debt obligations (CDOs) [Investopedia backgrounder] to investors lies at the core of the controversy. Goldman responded [press release] to the allegations by denying all wrongdoing. The SEC is seeking "injunctive relief, disgorgement of profits, prejudgment interest, civil penalties and other appropriate and necessary equitable relief from both defendants," remedies considered appropriate in securities fraud cases.

The SEC action continues a trend in bringing action against financial corporations and their agents that engaged in allegedly illegal conduct at the start of the subprime mortgage downturn in 2007. Last year, two former Bear Stearns hedge fund managers were acquitted [JURIST report] of securities-related charges. The June 2008 SEC complaint [text, PDF] alleged that the managers had taken leveraged positions in financial derivatives based on subprime mortgage-based assets and then taken steps to conceal ensuing losses from investors.

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