The Goldman Sachs serious fraud case is a topic which has dominated headlines and conversations for the past few weeks and with the results likely to have a serious effect on the future environment for investments, we figured it would be a good idea to explore it in more detail.
Charges brought about by the Securities and Exchange Commission (SEC) mean that Goldman Sachs is in court defending itself against allegations of fraud pertaining to a number of "misleading statements and omissions" it made in relation to a mortgage-based investment scheme
The product in question, known as ABACUS 2007-AC1, was essentially a bet on whether a number of sub-prime mortgages would meet their payment demands. It is alleged that the investment bank misstated and omitted facts in disclosure documents to various investors for the product.
Goldman Sachs was paid a fee of $15 million for setting up the scheme. The accusation is that the bank misled a handful of its investors, by betting against the mortgage package which it had created. By doing this, Goldman Sachs was able to profit from the same product that lost a number of its customers a significant amount of money.
In its defence, Goldman Sachs has claimed that its clients were experienced market players: "The risk associated with the securities was known to these investors, who were among the most sophisticated mortgage investors in the world," the bank said in a statement.
The case is likely to leave many investors with a sense of distrust about future deals, whether that be in property or other financial markets, and highlights the need for reform to be introduced.
Whatever the eventual outcome of the case, it is likely that a number of new regulations will be introduced - amid overwhelming public support - in the banking and investment industry, with the aim to increase transparency and fairness in the system. However, the new guidelines will not be immediate and may take years to come into effect.
Some of the reforms that are likely to come into place are a restructuring of the market, more regulation and consistency and a move away from taxpayer funding in financial institutions.
- Friday 30 April 2010