Case Analysis: the Default of Goldman Sachs

Case Analysis: the Default of Goldman Sachs

Report on Goldman Sachs Fraud Charges
This report aims to offer an overview of Goldman Sachs fraud charges, and provides a detailed analysis of the CFA Institute Code of Ethics and Standards of Professional Conduct that it has been broke.
Backgrounds and facts
Opening: Adam’s Apple: ABACUS 2007-AC1
From late 2005, Goldman, Sachs & Co. (“GS & Co”) started to structure and market a series of related-to-RMBS synthetic CDOs, when Paulson & Co. Inc. (“Paulson”), a hedge fund, took a bearish view on subprime mortgage loans. Then they discussed to create a CDO (i.e. ABACUS 2007-AC1) that would allow Paulson to select the portfolio with high credit risks and then short it through the use of CDS so that Paulson could benefit.
Development: Looking For Confederate
Obviously, an experienced and independent third-party was needed by GS &Co and Paulson in order to make the CDO more attractive and trustworthy to investors, especially when housing market were beginning to show signs of distress. So they found ACA Management LLC (“ACA”). Undoubtedly, GS&CO didn’t inform ACA that Paulson had participated in selecting high risky RMBS and would short the portfolio, and also misled ACA believe that Paulson was investing in the equity and shared a long interest with CDO investors.
Climax: Poor Investors Swallowed the Bait
When introducing the ABACUS 2007-AC1 to potential investors, GS&CO didn’t disclose the significant role and short position of Paulson, as it did with ACA. About Apr 26, 2007, ABACUS 2007-AC1 closed .IKB, a commercial bank, bought $50 million at face value. In addition, through a series of CDS, ACA capital and ABN AMRO Bank N.V. (“ABN”) took the credit risk of the super senior portion of ABACUS 2007-AC1.
Ending: Innocent Victims Suffered, Villains “Harvested”
Not surprisingly, since 99% of the portfolio had been downgraded, the investors lost over $1 billion while GS&CO received about $15 million from Paulson, which yielded a profit of approximately $1...

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