Goldman Sachs Fraud Case Research Paper Example | Topics and Well Written Essays - 2000 words

Goldman Sachs Fraud Case - Research Paper ExampleGoldman Sachs Fraud Case Introduction Goldman Sachs defrauded investors by failing to reveal the apparent conflict of interest on mortgage investment it floated as the house food market became sour. The charges that were brought forward by the Securities Exchange fit against Goldman Sachs argued for unlawful action and fraud in the concern of toxic subprime mortgage derivative securities. Nevertheless, Goldman Sachs affirmed that they were merely following normal business practices and had not perpetrate any wrong. The Goldman Sachs fraud case elicited critical issues centering on the inadequacy of the investment banking practices, and elevated the question whether it is a case of deceptive or unethical behavior (Craig & Scannell, 2010). The three-month legal ordeal erased cobblers last to $20billion of the firms stock-market value. A lively public discussion that followed the charge of Goldman Sachs by secondment come to on wh ether Goldman Sachs, broadly viewed as an embodiment of bubble-era greed, was also a lawbreaker. Questions emanated on whether Goldman bankers warranted condemnation for deliberately exploiting the naivete of investors to gain from the trading of debt instruments that were bets on a market Goldman Sachs was doomed to collapse (Whalen & Bhala, 2011). Although the transaction entailed in the southwards lawsuit can be regarded as small by Goldman Sachs standards, its arrangement alludes to weighty questions regarding the breach of the banks in driving up a market within mortgage-derived securities that lingered practically inclined to self-destruction (Buell, 2011). The SEC was asking whether Goldman Sachs gained from both sides in a way that contravened their fiduciary obligation to their customers. The SEC claimed that investors essentially unconnected over $1billion dollars and that Paulsons short option debt instrument on the credit instrument derived a clear of more than $1bi llion (Jones, 2010). Email traffic pointed out that Tourre plus others were aware of the subprime mishap as early as January 2007 before the crisis became full blown. The SEC sought a restriction, disgorgement of profits, and sanctions with regard to interest and civil financial penalties (Craig & Scannell, 2010). In addition to these charges, criminal prosecutors were exploring whether Goldman Sachs or its employees committed securities fraud with regard to the firms mortgage trading. 1 The Fraud Goldmans case entailed four comprises of securities that all played some roles amid the 2008 financial downswing first, the residential mortgage-backed securities (RMBS) embodying a form of security derived from pooling of mortgages on residential real-estate into bonds a credit-default swap (CDS) representing a form of insurance policy a collateralized debt obligation (CDO) representing a debt security collateralized by debt obligation and, synthetic CDOs (SCDOs) equivalent to ordinary to ordinary CDOs excluding that investors own CDOs on real securities rather than the real securities themselves. The Securities and Exchange Commission (SEC) filed a civil fraud charge against Goldman Sachs & Co, as well its vice presidents for fraud for misrepresenting information meant for investors by misstating key facts regarding a financial product connected to subprime mortgages at a moment when the housing market within the United States started to crumble and lose value (Buell, 2011).