The Securities and Exchange Commission has filed a lawsuit against Goldman Sachs for fraud, specifically claiming that Goldman misrepresented how their product was created. This case is unique because fraud cases usually claim that the defendant misrepresented the product to buyers, not how it was created. The SEC claims that in 2007, Goldman sold to investors a package of securities picked by one of their hedge fund managers, John Paulson. While Goldman was promoting the package, Paulson was betting against the very securities he chose for the package. In order to win the case, the SEC has to prove that Goldman misled investors and that if the information had been provided to investors, they would not have purchased the package. This case has large implications for the future of securities law.
I think this is a monumental step in financial industry regulations because this is the first time one of the "too-big-to-fail" companies are directly targeted and made responsible for their actions. As more and more truths are revealed following the collapse of the financial industry, it becomes more apparent how little regulation was placed on these large companies. Unfortunately, I do not see Goldman taking as big of a hit as we would expect and they will probably leave their agent out to take the fall while they continue to operate their own way.
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