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The long-awaited report of the Financial Crisis Inquiry Commission (“FCIC”) has
now been released. Ironically, earlier in January, Goldman Sachs released its Report of
the Business Standards Committee which was created to conduct an extensive review
of Goldman Sachs' business standards and practices.
The Goldman Report states as its very first principle “Our clients’ interests come
first” and CEO Lloyd Blankfein said that the resulting recommendations “represent a
fundamental re-commitment by Goldman Sachs to our clients, and the primacy of their
interests.”
But as the FCIC Report documents, in late 2006 and into 2007 Goldman put its
own interests far ahead of its clients’ interests; indeed, its entire strategy was premised
on taking advantage of its clients’ trust in the word of Goldman Sachs.
This was the experience of the Basis Yield Alpha Fund (Master) which in June
2007 invested approximately $80 million in highly-rated securities issued by the now
infamous Timberwolf synthetic CDO created by Goldman Sachs in the first half of 2007.
The Basis Fund is suing Goldman in the Federal Court in New York for losses incurred
from the investment which turned sour in a matter of weeks.
As the FCIC reports, during this crisis, Goldman “cleaned up pretty well.”
Goldman created and sold $25.4 billion of CDO securities from December 2006 to
August 2007, including 17.6 billion of synthetic CDOs, including the $1 billion
Timberwolf CDO. By doing so, Goldman unloaded much of its inventory of toxic assets,
selling what appeared to be highly-rated bonds to its clients all the time expecting the
bonds to default, and all the while shorting the very securities it was selling.
The FCIC report also shows how before the sale of the Timberwolf securities to
the Basis Fund, Goldman Sachs knew, as a repo lender to the Bear Stearns funds, that
those funds had defaulted on their margin calls and that a flood of highly-rated CDO
paper (including hundreds of millions of dollars worth of Timberwolf securities) was
about to hit the secondary market, depressing prices and making the Timberwolf
security essentially unsellable.
The Fund is not surprised that the neutral and independent FCIC, after hearing
testimony from Goldman Sachs and reviewing internal Goldman Sachs documents,
found grave cause for concern over Goldman’s actions during this crucial period. The
Fund continues aggressively to pursue its claim against Goldman Sachs.
CONTACT:
In the United States: Eric Lewis – 202 833 8900; m 202 352 8900.
In Australia: Michael Mullane d: +61 2 8284 9993;m: +61 414 590 296.