Skip to main content

Explaining SEC’s case against Goldman Sachs…

SEC claims the following about GS..

Goldman Sachs had played a vital role in this case according to SEC. Paulson & Co, a big Hedge fund in the US had approached GS to help it sell a CDO (Collateralized Debt Obligation) consisting of a basket of unworthy assets. The idea was that, GS sells this CDO to investors and Paulson would go short on it. A CDO is basically a pool of debt obligations. This could be used for balance sheet adjustment purposes by companies with unbalanced credit structure or for arbitrage purposes. As investors generally do not prefer to invest in CDOs packaged by Hedge funds, GS approached ACA, whose principle business is to select assets for CDOs, to include their name in the brochures and marketing materials. GS is said to have mislead ACA and ACA believed that the CDO would be packaged by them and Paulson jointly. On the other hand, investors have been told that the CDO was packaged by ACA and weren't informed about Paulson's hands on it. This led to SEC charging GS for 'making materially misleading statements' in its marketing materials. Simply put, GS took slices of the CDO and sold them to the investors and Paulson went short on it, making it sound like a pre-arranged market pariticipation. GS took a commission of $15mn from Paulson, Investors lost $1bn betting on the losing chunk of assets and Paulson who betted against it squeezed out a neat profit of $1bn. Enough reasons for a lawsuit!

Comments

Post a Comment

Popular posts from this blog

Using Options to play the Union Budget of India

What could be a good Nifty Options strategy to play the Union Budget that is to be presented tomorrow? A long straddle appears to have performed quite well over the last few years. Before you read further, here are some dates to remember: 16th March 2012 (Friday) is the date of the Union Budget and 29th March 2012 (last thursday of the month) is the date of expiry of March 2012 Option contracts. Union budgets may or may not be predictable. It could turn out to be positive for the market or in some cases negative. When we can't assess a definite direction for the market post budget, it's best we take a position that is completely independent of the direction itself. In other words, we don't need to care where the market is headed after the budget is announced but it would be great if it moves significantly for this strategy to work. However, historically the Nifty benchmark index has indeed moved quite a bit from the budget date to the next expiry date in either directi
Post a Comment
Read more

Hedging Currency Risk

"How to have my foreign currency income converted at a fixed exchange rate vis-a-vis INR?" Exchange rates have been a worry for a lot of us for a variety of reasons. The most common cause of concern with foreign currency income is the fluctuating nature of the currency which at a lower exchange rate would translate into fewer Rupees. This is no brain-jammer, its relatively a simple problem to deal with and that's exactly what this post is all about. This is mostly useful when the Rupee is already quite depreciated, i.e. when you get more of INR for every USD as is the case now. The current Ex Rate is Rs. 46.81 / USD. Now, if you are happy with this exchange rate and are not willing to take a risk with the possible Rupee appreciation, you can even lock your future USD income at this rate. That is, even if the rupee appreciated to Rs. 45/USD when you get your next month salary, you can still have the USD converted at Rs. 46.81! Basically, when Rupee appreciates, it mean
5 comments
Read more