Goldman Sachs accused of fraud

Always in trouble...

Water is wet, the sky is blue and Goldman Sachs is being accused of fraud. It's no massive surprise, after all the US federal government brought fraud allegations against the company last week, but the cherry of the cake is that the company's chief executive, Lloyd Blankfein, is being sued by shareholders who have filed their own lawsuits.

Blankfein and other company officials have been targeted by angry shareholders in two separate lawsuits, who have accused them of "breaching their fiduciary duties." The lawsuits were filed at the New York State Supreme Court.

Sub-prime mortgage investing

The lawsuits state that Goldman Sachs, with Blankfein's knowledge, entered into a series of transactions, known in the industry as Abacus, that involve investments tied to sub-prime mortgages.

What is of concern to the shareholders is the marketing of sub-prime mortgage investments by Goldman Sachs, just as the US housing market faltered.

Abacus has already been the subject of a civil fraud lawsuit filed against Goldman earlier in the month by the US financial watchdog, the Securities and Exchange Commission.

Such 'vital information', the Securities and Exchange Commission said Goldman had failed to disclose included the fact they let one of its clients, Paulson & Co, choose which securities were packaged into the mortgage portfolio. These were then sold to investors in 2007.

Of course, Goldman failed to reveal that Paulson, which is one of the world's largest hedge funds, had predicted the value of the securities would drop...

It is the latest scandal for the company, that has also been hit with allegations that AIG is considering suing Goldman over about $2 billion of losses it incurred from past derivatives instruments.

Relevant articles:

Goldman Sachs says 'sorry' | Goldman bankers won't receive bonuses | Formal investigation into Goldman

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