GOLDMAN Sachs threw down the gauntlet to the US Securities and Exchange Commission (SEC) long before it filed fraud charges on Friday, the bank’s initial written responses to the investigation have shown.
Goldman countered the SEC claims in 60 pages of response documentation in September, when it warned the allegations are rife with “fatal deficiencies”. The bank argued:
• that investors in the “Abacus” synthetic collateralised debt obligation (CDO) transaction were “highly sophisticated” and that hedge fund Paulson & Co – whose involvement in selecting the reference portfolio of mortgage-backed securities the SEC claims was concealed – was “little-known”.
• that those sophisticated investors were more than capable of performing their own objective analysis of the underlying securities and adjusting their risk tolerance accordingly.
• that a synthetic CDO transaction fundamentally involves both long and short investors and that the participants on both sides regularly express views on portfolio selection
• that disclosure of the investors’ identities would have constituted a breach of client confidentiality.
• that the losses incurred by the investors were not as a result of that particular transaction but rather due to a general market-wide decline.