Posts Tagged ‘sec’

Goldman and Google Send Stocks Crashing

Apr 16, 2010 Company News, Stock Market, Stocks On The Move

2010 Q1 results from Google (GOOG) after the bell yesterday, and news that the Securities and Exchange Commission is suing Goldman Sachs (GS) for fraud, sent the stock market into a tailspin today.

Google reported that for the Q1 period ending March 31, it had revenues of $6.775 billion and net income of $1.955 billion or $6.06 per share on a diluted basis, $6.76 on a non-GAAP basis. This actually beat Wall Street analysts’ consensus estimates, which were $4.95 billion on the revenue side and $6.60 on a per share basis. However, some analysts were looking for Google to exceed a “whisper” EPS of $6.76 per share.

Stocks opened a tad lower, with the Dow opening down just 0.91 points, on Google concerns, but by 10:18, we were back up in positive territory, although we saw a mild reversal again to the downside. Then at about 10:40am, the market was hit with the news that the SEC is suing Goldman Sachs for fraud.

The SEC is charging Goldman Sachs “for making materially misleading statements and omissions in connection with a synthetic collateralized debt obligation (“CDO”) GS&Co structured and marketed to investors.” According to the SEC, “this synthetic CDO, ABACUS 2007AC1, was tied to the performance of subprime residential mortgage-backed securities (“RMBS”) and was structured and marketed by GS&Co in early 2007 when the United States housing market and related securities were beginning to show signs of distress.”

In otherwords, the SEC is alleging that Goldman Sachs sold faulty products that it knew or should have known is faulty.
Furthermore, the SEC is charging that hedge fund company Paulson and Co, which was part of the CDO’s portfolio selection process, helped Goldman pick the specific mortgage securities that made up the CDO, but then Paulson and Co then turned around and bought puts (protection against downside moves) on certain aspects of the CDO. From the SEC’s standpoint, being that Paulson was in effect short the portfolio, it was in its interest to select components to go into the CDO, that it knew would experience credit events in the future, in which case, Paulson would profit.

The SEC further charges that Fabrice Toure, the Goldman Sachs employee who devised the transaction, misled ACA Management LLC (“ACA”), an outside third-party that analyed the credit risk in the underlying residential mortgage-backed securities, into believing that Paulson invested about $200 million in the CDO, when this was not the case.

Google lost $45.15 or 7.59% to close at $550.15, while Goldman Sachs was off $23.57 or $12.79%, to close at $160.70.

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