S.E.C. sues Goldman over bets against housing

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It seems Goldman Sachs has larger problems than its employees’ complaints about the company’s new 200 West Street headquarters. The Securities and Exchange Commission filed a civil suit today that accuses the bank of engaging in securities fraud when it bet against a mortgage investment it was also selling to customers. The suit cites an investment called Abacus 2007-AC1, a bundle of mortgage bonds created in 2007, allegedly so that hedge fund manager John Paulson could bet against them. Paulson made an estimated $3.7 billion in 2007 on bets that the housing bubble would burst, according to the New York Times. Meanwhile, Goldman also sold the destined-to-fail Abacus deal to investors including foreign banks, pension funds, insurance companies and other hedge funds. Abacus was one of 25 deals of its kind — that is, investments created so that Goldman and certain clients could make negative bets against the housing market. [NYT]

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