The SEC lawsuit against Goldman Sachs alleging that it designed a financial product rigged to fail is one among the many that the company has had to face of late.
Back in 2008, Goldman Sachs paid up $60 million to terminate an investigation by the Massachusetts attorney general’s office amidst allegations of irresponsible behavior by co-operating with blacklisted subprime lenders Fremont and New Century. The company claimed that it had done nothing wrong and maintained its innocence.
Recently, Goldman was also sued by the New York state attorney general, amidst accusations of duping investors regarding risks associated with auction-rate securities. This was also settled after Goldman paid millions of dollars.
Goldman Sachs’ brand image has suffered due to a whole host of allegations, including over payments to staff at the expense of taxpayers’ money. And all this in the wake of the recession and the financial crisis that brought the economy to its knees. Another such allegation is related to Goldman Sachs’ weekly ‘trading huddles’. Goldman has been accused of sharing trade tips with select clients thus behaving unfairly and unprofessionally with the rest of its customers.
Goldman Sachs has been mired in another controversy involving American International Group or AIG, which was the recipient of a government bailout of over $180 billion. The allegation is that when AIG went under, Goldman Sachs made billions of dollars when credit default swap (CDS) contracts were unwound.
In the SEC case, Goldman Sachs banker Fabrice Tourre will testify along with CEO Lloyd Blankfein. The SEC lawsuit concerns a Goldman product ABACUS whose performance was based on how subprime mortgage backed securities fare. At the center of this issue is John Paulson, a hedge fund manager whose firm Paulson & Co made billions of dollars in profits by betting that the housing market would fall. SEC alleges that Goldman Sachs withheld important information from investors about ABACUS and also failed to reveal that Paulson & Co. was involved in selecting the securities that would comprise the portfolio.
The lawsuit against Goldman Sachs is a civil lawsuit and it is relying on the legal expertise of former White House counsel Gregory B Craig. The growing number of accusations, investigations and lawsuits against the company have dented its image in the public. But the company has responded with a PR blitz of its own and has hired top lawyers to counter these allegations.