in February 27, Goldman Sachs launched a mortgage debt bond based on subprime mortgage, which was commissioned by Paulson & Company, a large American hedge fund, to sell to investors such as multinational banks, funds and insurance companies. Paulson Company, on the other hand, is bearish on the US mortgage debt bond market, and it paid Goldman Sachs about $15 million in design and marketing expenses, aiming at making profits by shorting mortgage debt bonds. However, Goldman Sachs did not explain that Paulson Company was related to this financial product when selling it to investors, which caused investors to lose about $1 billion in less than one year.
"This brand-new financial product is very complicated, but the fraud and conflict of interest are simple and old. Goldman Sachs mistakenly allowed a customer who could profoundly affect the mortgage securities in its portfolio to short the mortgage market, and Goldman Sachs also provided false statements to other investors: the investment content of the securities was selected by an independent and objective third-party institution. "
Robert Kuzami, head of the SEC's law enforcement department, made the above statement in the indictment, claiming that Goldman Sachs allowed clients who intended to short to participate in the decision of "what mortgage debt bond products to include in the portfolio", but claimed that this product was launched by an "independent and objective third party" when promoting it, which was suspected of misleading investors.
At the same time, fabrice Torray, vice president of Goldman Sachs, was sued, and the SEC accused him of being mainly responsible for this fraud case, because the executive designed the above transaction, was responsible for the preparation of marketing materials and was responsible for direct communication with investors. The SEC believes that Torray is aware of Paulson's hidden short-selling position and the company's role in asset selection.
However, the SEC indictment did not accuse John Paulson, the head of Paulson & Co., which is considered to be the most successful hedge fund manager in the financial crisis. Because he insisted on shorting the mortgage bond market before the financial crisis broke out, he made a personal gain of $3.7 billion in 28, which made him famous for a while. However, the prosecution by the SEC made the outside world wonder if there was something else hidden in the success of this "air force commander".
Responding to the collapse of Wall Street stock market and futures market
Goldman Sachs immediately countered the SEC's allegations. In a statement, the bank denied the alleged fraud, calling the SEC's allegations "groundless". The statement also stressed that Goldman Sachs itself lost as much as $9 million in related transactions, and it was "not obliged" to explain the identity of the other party to the buyers and sellers of financial products.
Although Goldman Sachs firmly denied the allegations, its share price was still strongly impacted that day, and it fell by $23.57 to $16.7 at the close, plunging 12.8% for the whole day, and its market value evaporated by $12 billion overnight. At the same time, Wall Street bank stocks also fell sharply due to the drag of Goldman Sachs. Among them, the shares of Deutsche Bank, which had done business with Paulson Company, fell by 9.2%, and other important bank stocks such as Citigroup, Bank of America and Morgan Stanley also fell by more than 5%. However, due to the collective sharp decline of banking stocks, the Dow Jones Industrial Average once fell below 11, points that day, and finally closed at 11,18 points, down 1.13%.
In addition to the stock market, the news of Goldman Sachs' alleged fraud also impacted the commodity market. The futures contract of new york's main crude oil (8.91,-2.33 and-2.8%) fell 2.4% that day, the biggest one-day drop in more than two months. New york's main gold (1132.9,-4.,-.35%) futures contract also fell 2% to close at $1137 per ounce.
The "fraud gate" incident of Goldman Sachs caused a strong market reaction because the bank had not disclosed that it was under investigation by the SEC before. According to American media reports, Goldman Sachs received a warning from the relevant person of the SEC that it would sue as early as nine months ago, but the investment bank did not disclose this information to investors in the routine announcement. In addition, the "fraud gate" incident of Goldman Sachs also triggered the Wall Street earthquake, because the market began to believe that the SEC was investigating the role played by large investment banks and financial institutions in the financial crisis, because there were signs that they were still designing and selling financial products related to the housing market when the housing market showed signs of decline. "The Committee will continue to investigate the operation mode of investment banks and other institutions related to structured and complex financial products in the real estate market when the real estate market begins to show signs of weakness." Kenneth Rench, the head of the SEC's Structured New Products Division, made a statement in the indictment, which aggravated the market's worries.
American local analysts believe that the "fraud gate" incident of Goldman Sachs has a great impact on Goldman Sachs and even Wall Street. Although the final result is likely to be that Goldman Sachs reached a settlement with the SEC and paid hundreds of millions of dollars, there may be more than one such case-because since the financial crisis, although there have been voices accusing Goldman Sachs of contributing to the financial crisis, these accusations have no sound basis and have never led to investigation or prosecution. This means that the supervision of financial institutions in the United States will be stricter, rather than "thunder and rain." At the same time, as the "settling accounts after autumn" of the financial crisis continues, more banks will face similar prosecutions in the future.
US President Barack Obama's statement on Saturday is also in line with this market expectation. In his speech, Obama urged the US Congress to adopt stricter financial supervision measures to prevent the United States from falling into economic crisis again.
"If we don't take action now, the system that caused the financial crisis will continue to operate with the same loopholes and disadvantages." Obama's tone is quite tough. "If we don't try to change the causes of the crisis, we are doomed to repeat the same mistakes."
Buffett lost $1 billion overnight
Goldman's alleged fraud will also arouse investors' doubts about the credit of large financial institutions, because in the annual report published by Goldman Sachs earlier this month, lloyd blankfein, CEO of Goldman Sachs, wrote an eight-page letter to shareholders. In his letter, he repeatedly emphasized Goldman Sachs' principle that "the interests of customers are above everything else". Obviously, the SEC's accusation is completely contrary to Goldman Sachs' self-assertion, and this contradiction will further shake investors' confidence in Goldman Sachs, prompting them to suspect that Goldman Sachs is also hiding facts in other ways.
In addition to affecting investors' confidence, Goldman's alleged fraud has embarrassed many of its supporters, including Warren Buffett.
In fact, not long before the Goldman Sachs fraud scandal broke out, Ronald Olson, the director of Buffett's flagship investment company Berkshire Hathaway, was very fond of Goldman Sachs in an interview with American media, saying that the investment of $5 billion in Goldman Sachs in that year strongly showed that they believed not only in its strength but also in its integrity.
Relevant information shows that in September 28, just after the bankruptcy of Lehman Brothers and the emergency takeover of Merrill Lynch by Bank of America, Goldman Sachs Group agreed to sell Buffett 5 billion US dollars of warrants, and agreed that Buffett would subscribe for Goldman Sachs shares at the price of 115 US dollars per share at any time in the next four years, and pay 1% annual interest for these warrants.
In the following year or so, Goldman Sachs' share price rose steadily after bottoming out, and Buffett's investment in that year got a huge return, which made many people begin to pay admiring attention to Buffett's investment in that year. However, to the surprise of the stock god, this time Goldman Sachs was sued by the SEC for alleged securities fraud, and its share price also shrank sharply in an instant-according to the latest closing price of Goldman Sachs, Buffett's warrants were worth about $2.6 billion, and the loss reached $95 million overnight. What annoys Buffett even more is that the "fraud door" incident of Goldman Sachs also poses a challenge to its reputation-is it that the stock god is blind or Goldman Sachs is too well disguised? For all this, Buffett will give an answer at the Berkshire shareholders' meeting early next month.