The case against Goldman: Falling apart?

New testimony could derail the SEC's case against Goldman Sachs, according to some commentators

The Goldman Sachs building.
(Image credit: Corbis)

The Securities and Exchange Commission has charged Goldman Sachs with fraud for not disclosing key information to investors in a $1 billion mortgage derivative deal. The government says that the bank put the interests of hedge fund Paulson & Co.—a client that wanted the portfolio to go down in value—ahead of the interests of the investors who purchased the the products, by not disclosing Paulson & Co.'s position. But in newly revealed testimony to the SEC, a former executive of Paulson & Co., Paolo Pelligrini, claims he told a lead investor in the portfolio that his company planned to bet against (or "short") the products. Some observers say the testimony could doom the SEC's case. What's the prognosis for Goldman? (Watch a Bloomberg report about the SEC's charges.)

This is bad news for the SEC: Pellegrini's testimony is "incredibly devastating," says Joe Weisenthal in Business Insider. His statement "directly refutes" the SEC's claims that the investors "had no idea" Paulson planned to short the mortgage packages. This is "massively exculpatory" for Goldman.

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