NEW YORK (
has decided to go on the offensive.
After issuing the usual boilerplate statement about "vigorously" defending itself earlier Friday, the company has now come out with a
much longer, much more detailed press release
that directly addresses the
Securities and Exchange Commission
's decision to bring
against it alleging the company misled investors about subprime mortgage-backed securities it sold them.
"We are disappointed that the SEC would bring this action related to a single transaction in the face of an extensive record which establishes that the accusations are unfounded in law and fact," the statement begins.
Goldman then goes on to make what it calls four "critical" points that it believes are missing from the
The company's first point is that it lost money on the deal in question; a total of $75 million when the $15 million fee it received for setting up the CDO
collateralized debt obligation transation is subtracted. Goldman also contends that "extenstive disclosure" was provided to the two investors in the CDO, German bank IKB and ACA Capital Management.
"The risk associated with the securities was known to these investors, who were among the most sophisticated mortgage investors in the world," Goldman says. "These investors also understood that a synthetic CDO transaction necessarily included both a long and short side."
Goldman then takes issue with the SEC's contention that hedge fund Paulson & Co. unduly influenced the contents of the transactions to pick subprime mortgages that would likely go bad. It contends that ACA Capital, the largest investor in the CDO, picked the securities in the portfolio and that it had "an obligation and every incentive to select appropriate securities." Goldman says the involvement of Paulson came during the discussion phase of the securities selection process and was "entirely typical" of these kind of deals.
And finally, the company states that it never represented to ACA Capital that Paulson would be a long investor in relation to the CDO transaction, saying: "As normal business practice, market makers do not disclose the identities of a buyer to a seller and vice versa."
Goldman closes the release on what will probably seems like the most telling point for long-time followers of the company, reiterating that the firm took a bath on the deal.
"The transaction was not created as a way for Goldman Sachs to short the subprime market," the firm says. "To the contrary, Goldman Sachs's substantial long position in the transaction lost money for the firm."
Goldman shares finished Friday down 13% at $160.70, and sunk as low as $155.55 during the session. Volume reached almost 102 million, more than eight times the issue's trailing three-month daily average of 12.2 million.
Written by Michael Baron in New York