April 17, 2010
As you may have heard, Goldman Sachs is being sued for fraud  by the Securities and Exchange Commission  for allegedly misleading investors about a deal that Goldman helped structure and sell. In the civil suit, the SEC specifically faulted Goldman for failing to disclose that a hedge fund was helping create the investment while betting big the deal would fail.
According to the SEC, Goldman Sachs knew about the hedge fund’s bets, knew it played a significant role in choosing the assets in the portfolio, and yet did not tell investors about it. (Goldman Sachs has called the SEC’s accusations “completely unfounded in law and fact.” And in another more detailed statement , it said it “did not structure a portfolio that was designed to lose money.”)
As we reported at ProPublica last week, many other major investment banks were doing a similar thing .
Investment banks including JPMorgan Chase , Merrill Lynch  (now part of Bank of America), Citigroup, Deutsche Bank and UBS also created CDOs that a hedge fund named Magnetar was both helping create and betting would fail. Those investment banks marketed and sold the CDOs to investors without disclosing Magnetar’s role or the hedge fund’s interests.
Here is a list of the banks that were involved  in Magnetar deals, along with links to many of the prospectuses on the deals, which skip over Magnetar’s role. In all, investment banks created at least 30 CDOs with Magnetar, worth roughly $40 billion overall. Goldman’s 25 Abacus CDOs — one of which is the basis of the SEC’s lawsuit — amounted to $10.9 billion .
This article was posted: Saturday, April 17, 2010 at 5:15 am