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We didn't design any portfolio to lose money: Goldman

business Updated: Apr 18, 2010 19:09 IST

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The Wall Street giant Goldman Sachs, which is under fire from the markets watchdog, has said it did not structure a "portfolio that was designed to lose money".

Refuting the charges brought by the US market regulator SEC, the banking major has asserted the accusations are unfounded in "law and fact".

The US Securities and Exchange Commission on Friday made the charges against Goldman Sachs for "defrauding investors by misstating and omitting key facts about a financial product tied to sub-prime mortgages as the US housing market was beginning to falter".

Expressing disappointment over the SEC action related to a single transaction, Goldman said the bank itself lost money on the deal.

"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," the banking major said on Friday.

The regulator's complaint alleged that Goldman marketed a collateralised debt obligation (CDO), whose fortunes hinged on the performance of sub-prime residential mortgage-backed securities. Interestingly, sub-prime mortgages, where chances of defaults are high, were one of the main reasons for the global financial crisis. Also, excessive issuing of CDOs, a complex financial instrument, was blamed for the meltdown.

The entity failed to disclose vital information about the CDO, especially the role of a major hedge fund player in the portfolio selection. One of the world's largest hedge funds Paulson & Co paid Goldman to structure a transaction, SEC said.

"The SEC charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation," Goldman said in the statement. Further, it noted that 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," Goldman Sachs said. The CDO in question is ABACUS 2007-AC1.

One of Goldman's vice-presidents Fabrice Tourre, responsible for ABACUS, has also been charged by the SEC. "Investors in the liabilities of ABACUS are alleged to have lost more than $1 billion," according to the SEC complaint.