GS Official statement

Posted on | Friday, April 16, 2010 | No Comments

NEW YORK--(Business Wire)--
The Goldman Sachs Group, Inc. (NYSE: GS) said today:
We are disappointed that the SEC would bring this action related to a single
transaction in the face of an extensive record which establishes that the
accusations are unfounded in law and fact.
We want to emphasize the following four critical points which were missing from
the SEC`s complaint.

* Goldman Sachs Lost Money On The Transaction. Goldman Sachs, itself, lost more
than $90 million. Our fee was $15 million.We were subject to losses and we did
not structure a portfolio that was designed to lose money.
* Extensive Disclosure Was Provided. IKB, a large German Bank and sophisticated
CDO market participant and ACA Capital Management, the two investors, were
provided extensive information about the underlying mortgage securities. The
risk associated with the securities was known to these investors, who were among
the most sophisticated mortgage investors in the world. These investors also
understood that a synthetic CDO transaction necessarily included both a long and
short side.
* ACA, the Largest Investor, Selected The Portfolio. The portfolio of mortgage
backed securities in this investment was selected by an independent and
experienced portfolio selection agent after a series of discussions, including
with Paulson & Co., which were entirely typical of these types of transactions.
ACA had the largest exposure to the transaction, investing $951 million. It had
an obligation and every incentive to select appropriate securities.
* Goldman Sachs Never Represented to ACA That Paulson Was Going To Be A Long
Investor. 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. 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.

In 2006, Paulson & Co. indicated its interest in positioning itself for a
decline in housing prices. The firm structured a synthetic CDO through which
Paulson benefitted from a decline in the value of the underlying securities.
Those on the other side of the transaction, IKB and ACA Capital Management, the
portfolio selection agent, would benefit from an increase in the value of the
securities. ACA had a long established track record as a CDO manager, having 26
separate transactions before the transaction. Goldman Sachs retained a
significant residual long risk position in the transaction
IKB, ACA and Paulson all provided their input regarding the composition of the
underlying securities. ACA ultimately and independently approved the selection
of 90 Residential Mortgage Backed Securities, which it stood behind as the
portfolio selection agent and the largest investor in the transaction.
The offering documents for the transaction included every underlying mortgage
security. The offering documents for each of these RMBS in turn disclosed the
various categories of information required by the SEC, including detailed
information concerning the mortgages held by the trust that issued the RMBS.
Any investor losses result from the overall negative performance of the entire
sector, not because of which particular securities ended in the reference
portfolio or how they were selected.
The transaction was not created as a way for Goldman Sachs to short the subprime
market. To the contrary, Goldman Sachs`s substantial longposition in the
transaction lost money for the firm.
The Goldman Sachs Group, Inc. is a leading global investment banking, securities
and investment management firm that provides a wide range of financial services
to a substantial and diversified client base that includes corporations,
financial institutions, governments and high-net-worth individuals. Founded in
1869, the firm is headquartered in New York and maintains offices in London,
Frankfurt, Tokyo, Hong Kong and other major financial centers around the world.

The Goldman Sachs Group, Inc.
Lucas van Praag, 212-902-5400
Dane Holmes, 212-902-0300
Copyright Business Wire 2010

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