Goldman Sach's 'Fab' Takes Time Off: Sources

Goldman also said that two investors in the deal, ACA Capital Management and German bank IKB, were among "the most sophisticated mortgage investors in the world" and "were provided extensive information about the underlying mortgage securities."

Goldman said that that ACA Capital ultimately approved the selection of the mortgage backed securities in the CDO "after a series of discussions, including with Paulson & Co."

The firm took issue with the SEC's arguments about what Goldman had to disclose about the parties involved in the deal.

"The SEC's complaint accuses the firm of fraud because it didn't disclose to one party of the transaction who was on the other side of that transaction," the firm said. "As normal business practice, market makers do not disclose the identities of a buyer to a seller and vice versa. Goldman Sachs never represented to ACA that Paulson was going to be a long investor."

Friday's news marked the first time that federal regulators had come forward with charges against a Wall Street deal that took advantage of investors as the housing market collapsed. This is the first case brought by the Structured & New Products unit of the Division of Enforcement at the SEC, which was formed to specialize in bringing cases in these types of conflicts involving complex financial products.

"We're looking at a wide range of products, transactions, and practices arising out of the credit crisis," Khuzami told reporters today.

SEC officials would not comment on whether they have referred Goldman to the Justice Department for possible criminal charges.

Harvey Pitt, former head of the SEC from 2001 to 2003 and currently chief executive officer of the global business consulting firm Kalorama Partners and former, said the SEC would not have taken Friday's action if it did not have a strong case. It shows, he said, a stronger willingness by the agency to go after cases such as this with greater speed.

"I think it's fair to say that the SEC won't sue a major pillar of the U.S. financial markets without making sure all its facts are correct," Pitt told ABC News. "Under the circumstances, I think this reflects a new determination on the SEC's part to move cases a lot faster than previously."

Friday's SEC announcement will also have ramifications in the court of public opinion -- it is likely to increase an already-simmering populist backlash against Goldman Sachs as well as boost Democrats' calls for increased regulation of Wall Street.

Sen. Ted Kaufman, a Democrat from Delaware, applauded the SEC's announcement and called for swift action against illegal actions by Wall Street banks.

"To restore the public's faith in our financial markets and the rule of law, we must identify, prosecute, and punish with stiff fines or prison those who broke the law," Kaufman said. "Their fraudulent conduct has severely damaged our economy, caused devastating and sustained harm to countless hard-working Americans, and contributed to the widespread view that Wall Street does not play by the same rules as Main Street."

ABC News' Alice Gomstyn and Rich Blake contributed to this report.

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