What Is Goldman Sachs Accused Of Doing?

Annemarie McAvoy on Good Day NY, April 19, 2010

Media Source

BY KATHY CARVAJAL

MYFOXNY.COM - Goldman Sachs- an international Investment bank and securities firm- is accused by the Securities and Exchange Commission of fraud.

For the average person, the case against Goldman is difficult to understand.

Good Day NY asked former federal prosecutor Anne Marie McAvoy to explain the accusations.

The SEC alleges that Goldman sold risky mortgage investments without telling buyers that the securities were crafted in part by a billionaire hedge fund manager who was betting on them to fail.

"You don't know there is someone betting against what you're hoping to get," said McAvoy.  "If in fact these allegations hold up, there is a very good chance this will be referred for criminal investigation. There may be more people involved ( other than a 31-year-old vice president accused in the SEC complaint.)

According to McAvoy, it's highly likely others at Goldman were aware of the alleged fraud.

"It would depend, but usually it would not be limited to a 31-year-old vice president.  There has to be someone supervising him who approved these transactions. This will undoubtedly spread to other firms as well," said McAvoy.

Goldman Sachs denies any wrong doing.

The announcment of a lawsuit by the SEC against Goldman was made on Friday. McAvoy points out that the timing is suspect.

"The inspector general of the SEC came out on Friday with a report critical of the SEC.  The timing of the Goldman report is questionable because they usually give the firm time to settle and negotiate... it's a coincidence but sometimes it's more than a coincidence," said McAvoy.

So what's next for Goldman? The firm says they will vigorously fight the accusations. McAvoy adds that they could have on thing on their side- the investor must have known about the fraud.

"The fact that the investors involved are incredibly sophisticated.. the fact that the product has someone always betting that the product is going up in value or someone always betting that it's going down in value... the claim  that the investor wasn't notified that someone was betting against the product... the investor would have known anyway."