Goldman Sachs, John Paulson And The Fabulous Fabrice Tourre :: The.
The Securities and Exchange Commission securities fraud complaint against Goldman Sachs and Fabrice Tourre makes for some fascinating reading. In essence, it says that Mr. Tourre, a Goldman employee who is now 31, back in 2007 helped John Paulson's hedge fund set up a "synthetic collateralized debt obligation" so that Mr. Paulson's hedge fund could short it -- and then went out and sold the long side of the security to other investors without adequately disclosing that the whole security had been designed with Mr. Paulson's cooperation for Mr. Paulson to short.
Says the complaint: "GS & Co and Tourre knew that it would be difficult, if not impossible, to place the liabilities of a synthetic CDO if they disclosed to investors that a short investor, such as Paulson, played a significant role in the collateral selection process."
It also quotes an email Mr. Tourre sent on January 23, 2007: "More and more leverage in the system, the whole building is about to collapse anytime now...only potential survivor, the fabulous Fab[rice Tourre]...standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all the implications of these monstruosities!!!"
The SEC complaint says Paulson & Co. made $1 billion on the deal, Goldman Sachs made a fee of at least $15 million, and the losers of the $1 billion were a German bank called IKB and another European bank, ABN-Amro, which was eventually bought by Royal Bank of Scotland.
Mr. Paulson and Paulson & Co. aren't charged with doing anything wrong.
It all makes for lively reading, though, from a public policy perspective, I'm not sure how I see how as an American taxpayer it's my job to pay regulators to protect sophisticated European bankers from 29-year-old Goldman Sachs bankers selling them investments on which they could lose $1 billion. If I were IKB or ABN-Amro/RBS, next time the Fabulous Fab came around selling something, I'd be a lot more skeptical, and it'd be a $1 billion lesson learned.
Meanwhile, it is another big public relations black eye for Goldman Sachs, From the firm's business principles: "Our assets are our people, capital and reputation. If any of these is ever diminished, the last is the most difficult to restore." The $15 million fee the firm earned from Mr. Paulson on this deal, if that is what it was, wasn't worth the reputational damage caused by the Fabulous Fab.
by Ira Stoll | Apr 16, 2010 at 11:42 amRelated Topics: Banking, Capital Markets Regulation, Goldman Sachs, SEC receive the latest by email: subscribe to the free futureofcapitalism.com mailing list
Escaping The Devil’s Bedroom: Dealing With Sex Offenders Who.
My former editor at Christianity Today mag sent me a link to the article below.CTI is conducting a groundbreaking national survey on attitudes about sex offenders in churches. Take the survey now & get a free download: http://bit.ly/9MJC7EThe survey will be used to produce several articles for publication later this year. Feel free to forward or copy this blog post.
I suggestedCT also include articles on s-x offenders being people too, and the potential for theirtransformation. While we need to be careful to protect our children, we also need to view these men and women in light of the Gospel's hope,as God's wounded sons and daughters.Let's remember who the real Enemy is. The editor repliedhewas already looking into that. Go CT!
How do we protect our members from known sex offenders?
by Richard R. Hammar
Question posted on ChurchSafety.com:
There is a female, registered sex offender who wants to attend our Sunday services. We want her to attend, but what guidelines should we have in place to safeguard our children?
Answer by Richard Hammar:
When the senior pastor, or any member of the church board, is informed that a registered sex offender is attending the church, there are steps that can be taken to manage risk. These include the following:
1. Obtain a record of the sex offender's prior criminal convictions by conducting a national criminal records check. The church must be fully informed regarding the sex offender's criminal background.
2. If the sex offender is on probation, identify his or her probation officer and ascertain the conditions that have been imposed. In some cases, sex offenders are not even allowed to attend church. If the probation officer says that the offender is free to attend church, ask the officer if he or she would recommend that the offender be allowed to attend church, and if so, under what conditions. Obtain this information in writing, or, if that is not possible, make a detailed written account of the officer's response.
3. Condition the sex offender's right to attend church services and activities on his or her signing a "conditional attendance agreement" that imposes the following conditions:
The sex offender will not work with minors in any capacity in the church.
The sex offender will not transport minors to or from church, or any church activity.
The sex offender will not attend any youth or children's functions while on church property, except for those involving his or her own child or children, and only if in the presence of a chaperone (see below).
The sex offender will always be in the presence of a designated chaperone while on church property. This includes religious services, educational classes, activities, and restroom breaks. The chaperone will meet the sex offender at the entrance of the church, and accompany the sex offender on church premises until returned to his or her vehicle.
A single violation of these conditions will result in an immediate termination of the sex offender's privilege to attend the church.
The conditional attendance agreement option will not be available unless the church's insurer is informed and confirms that coverage will not be affected.
4. In some cases, exclusion of the offender from church is the only viable option. This option is advisable if (1) for any reason the conditional attendance option is not feasible or enforceable; or (2) if the offender's crimes are so frequent or heinous that exclusion is the only appropriate option; or (3) one or more of the offender's victims attends the church. This will be a judgment call made by the pastor and board.
5. It is often desirable to draft a short policy addressing the church's response to registered sex offenders attending the church, and have it adopted by the congregation during an annual or special business meeting. This would allow the membership to discuss this issue in a rational manner.
6. Seek legal counsel in formulating the church's response.
For additional information on handling registered sex offenders, see volume four in Richard Hammar's four-book set, Pastor, Church & Law (4th ed., 2008, Christianity Today International).
Richard R. Hammar is senior editorial advisor for Your Church, Church Law & Tax Report, and Church Finance Today. He serves as legal counsel to the Assembly of God denomination. He is an attorney and CPA, specializing in legal and tax issues for churches and clergy. A graduate of Harvard Law School, he is the author of more than 100 books, including the annual Church & Clergy Tax Guide, the Compensation Handbook for Church Staff, and his landmark work, Reducing the Risk: Keeping Your Ministry Safe from Child Sexual Abuse.
Masterzico.com: Paulson Co Institutional Investor Background
Paulson & Co. is an investment management company founded in 1994 by John Paulson, the firm's current president and senior fund manager for all funds under management. Prior to founding the firm, Mr. Paulson was a General Partner of Gruss Partners, a merger arbitrage specialist, and a Managing Director in Mergers and Acquisitions at Bear Stearns. PCI manages domestic and offshore merger arbitrage/event driven funds for institutional and high net-worth clients.
Paulson Investment Company, Inc., a full service brokerage firm engaged in the purchase and sales of securities from and to the public and for its own account and in investment banking activities. Paulson Investment Company, Inc. is a wholly owned subsidiary of Paulson Capital Corp., a publicly traded company since 1971, and trades on the Nasdaq Capital Market under the symbol "PLCC".
Since 1978, Paulson Investment Company, Inc. has built a strong and unique reputation as a leading investment banker specializing in small and emerging growth companies with capital needs of $5 million to $50 million. Paulson Investment Company, Inc. has served as a manger or lead underwriter for over 160 offerings, raising over $1 billion for clients.
At Paulson Investment Company, Inc., we invest in synergy, seek out and join forces with progressive companies and smart investors who want to be part of a dynamic partnership - a partnership that has the power to fuel innovation, to infuse new energy into our communities, and to create new wealth for everyone involved.
Whether you're the investor with money to invest...the entrepreneur who has an idea worthy of investment...or the broker or banker who helps put the two together, our team will work with you to achieve success.
The firm employs merger arbitrage, long/short, and event-driven strategy to make its investments. It employs fundamental analysis to make its investments. The firm benchmarks the performance of its investments against the S&P 500 Index. It conducts in-house research. Paulson & Co. was founded in July 1994 and is based in New York, New York.
Sec Charges Goldman Sachs With Fraud On Subprime Mortgages
The SEC has filed civil charges against Goldman Sachs and its banker Fabrice Tourre for its role in structuring subprime mortgages, which it structured at the behest of hedge funders like John Paulson.
Goldman shares are off 10%.
At issue is the lack of disclosure of Paulson's role in selecting the assets that went into the CDOs.
There is also an allegation that John Paulson was presented as having gone long the CDO, when in fact he was short.
Investors in the CDO apparently lost approximately lost $1 billion.
This is the first case brought by the structured products unit of the SEC.
Some notes from the conference call on the charges:
- The unit is still investigating. It's possible other banks will be charged
- John Paulson is not included in the charge because he was not misrepresenting anything to anyone.
- If the SEC finds similar structures at other banks, there could be charges against them. But again, nothing official.
- Why aren't there charges against the CEO? The SEC only goes as high as necessary.
Update:
All financials are getting crushed on the news.
CNBC is reporting that it was Paulson's old right-hand man Paolo Pellegrini that ratted out Paulson and Goldman Sachs.
Our quick take: Tourre is toast. Goldman will be fine.
Here's Michael Lewis's guide to who's who in the CDO crisis.
The news of the charges comes two days after some bizarre activity in the financial ETF.
Yep, Goldman Sachs got sucker-punched.
This was the man inside Goldman Sachs who was shorting CDOs.
Here's the SEC release...
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Washington, D.C., April 16, 2010 The Securities and Exchange Commission today charged Goldman, Sachs & Co. and one of its vice presidents for defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter.
The SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.
"The product was new and complex but the deception and conflicts are old and simple," said Robert Khuzami, Director of the Division of Enforcement. "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."
Kenneth Lench, Chief of the SEC's Structured and New Products Unit, added, "The SEC continues to investigate the practices of investment banks and others involved in the securitization of complex financial products tied to the U.S. housing market as it was beginning to show signs of distress."
The SEC alleges that one of the world's largest hedge funds, Paulson & Co., paid Goldman Sachs to structure a transaction in which Paulson & Co. could take short positions against mortgage securities chosen by Paulson & Co. based on a belief that the securities would experience credit events.
According to the SEC's complaint, filed in U.S. District Court for the Southern District of New York, the marketing materials for the CDO known as ABACUS 2007-AC1 (ABACUS) all represented that the RMBS portfolio underlying the CDO was selected by ACA Management LLC (ACA), a third party with expertise in analyzing credit risk in RMBS. The SEC alleges that undisclosed in the marketing materials and unbeknownst to investors, the Paulson & Co. hedge fund, which was poised to benefit if the RMBS defaulted, played a significant role in selecting which RMBS should make up the portfolio.
The SEC's complaint alleges that after participating in the portfolio selection, Paulson & Co. effectively shorted the RMBS portfolio it helped select by entering into credit default swaps (CDS) with Goldman Sachs to buy protection on specific layers of the ABACUS capital structure. Given that financial short interest, Paulson & Co. had an economic incentive to select RMBS that it expected to experience credit events in the near future. Goldman Sachs did not disclose Paulson & Co.'s short position or its role in the collateral selection process in the term sheet, flip book, offering memorandum, or other marketing materials provided to investors.
The SEC alleges that Goldman Sachs Vice President Fabrice Tourre was principally responsible for ABACUS 2007-AC1. Tourre structured the transaction, prepared the marketing materials, and communicated directly with investors. Tourre allegedly knew of Paulson & Co.'s undisclosed short interest and role in the collateral selection process. In addition, he misled ACA into believing that Paulson & Co. invested approximately $200 million in the equity of ABACUS, indicating that Paulson & Co.'s interests in the collateral selection process were closely aligned with ACA's interests. In reality, however, their interests were sharply conflicting.
According to the SEC's complaint, the deal closed on April 26, 2007, and Paulson & Co. paid Goldman Sachs approximately $15 million for structuring and marketing ABACUS. By Oct. 24, 2007, 83 percent of the RMBS in the ABACUS portfolio had been downgraded and 17 percent were on negative watch. By Jan. 29, 2008, 99 percent of the portfolio had been downgraded.
Investors in the liabilities of ABACUS are alleged to have lost more than $1 billion.
The SEC's complaint charges Goldman Sachs and Tourre with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5. The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest, and financial penalties.
