The Securities and Exchange Commission filed charges against Goldman Sachs Group Inc (NYSE: GS) on Friday, accusing the Wall Street firm of defrauding investors in a sale of securities tied to subprime mortgages.
The SEC announced that it has charged Goldman Sachs and one of the company’s vice presidents, Fabrice Tourre, for failing to disclose conflicts in a 2007 sale of collateralized debt obligations which lead to a $1 billion loss by investors, according to the SEC.
The SEC’s civil fraud complaint stated that Goldman Sachs allowed hedge fund Paulson & Co to help select securities in the CDO, but failed to tell investors that Paulson was betting that the CDO would fail (shorting the CDO).
“Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party,” he said.
Goldman Sachs shares have declined by more than 10% during morning trading following the SEC’s announcement.
