S**t Hitting the Fan on SEC Probes and Criminal Charges

I am shocked at this moral bankruptcy. This is probably one of the worst cases that we have seen. - U.K. Prime Minster Gordon Brown

Really? You're shocked now? We've not shocked, we're shell shocked.

From the BBC:

"Hundreds of millions of pounds have been traded here and it looks as if people were misled about what happened. I want the Financial Services Authority to investigate it immediately. - Gordon Brown

Germany's Prime Minster is also taking about taking legal steps against Goldman Sachs.

The New York Times is reporting the SEC is back on the beat. In other words, starting to actually do their jobs, after a very negative report last Friday, not catching Stanford.

On Friday, the S.E.C. inspector general faulted the commission for failing to uncover a possible $7 billion Ponzi scheme at the Stanford Financial Group. Although its examiners had discovered evidence of wrongdoing in 2002, the district enforcement division did not take action, the inspector general said.

Ms. Schapiro said in an interview over the weekend that the S.E.C. shortcomings noted in the recent reports had been addressed in part by the makeover of the enforcement division.

Mr. Khuzami, the new enforcement director, said one of the most important changes was eliminating a rule that required investigators to get majority approval of the five-person commission in order to issue subpoenas, which has allowed the division to move more quickly.

The Wall Street Journal is reporting there are criminal charges being probed on Countrywide and the SEC is investigating other deals from other corporations. From AP:

A newspaper is reporting that federal authorities are picking up the pace in a criminal investigation of former mortgage giant Countrywide Financial Corp. and its role in the meltdown in 2007 and 2008 of the U.S. housing and finance industries.

The Wall Street Journal cited anonymous sources in reporting Sunday that one of several federal investigations now under way is a criminal probe of Countrywide. The paper didn't offer details on what charges could emerge.

My concern is we had major criminal charges in the Dot Con era as well as Enron and Worldcom, yet seemingly things just got worse. A few fines here, a few billions there. All in all, most actions were simply a government kickback fee, a trivial amount to rip off the American people was the result.

Meanwhile we have a very good article on how to stuff a CDO:

Anderson Mezzanine Funding 2007, Ltd. lays out its blueprint in sufficient detail so that we can pinpoint how and why this transaction's failure was never in doubt.

When the deal closed on March 20, 2007, there was virtual certainty that investors would get wiped out and that Goldman would receive a windfall. And that's exactly how things turned out. By December 2009, Anderson Mezzanine's nominal value had shrunk by more than two-thirds, from $307 million to $94 million, though remaining assets' fair market value was far less. The investment portfolio, which held only two performing assets, had an average credit rating of CC.

Anderson Mezzanine is by no means unique. More than $70 billion worth of toxic assets were dumped into mezzanine CDOs during an eight-month period between September 2006 and April 2007, when it became obvious to Wall Street banks that the lower-rated slices, or tranches, of mortgage-backed bonds were worthless. Other Goldman deals--Hudson Mezzanine Funding I and Hudson Mezzanine Funding II, various Abacus deals--were also designed to insulate the banks from losses on assets it knew to be worthless.

I recommend this David Fiderer article. He lays out exactly how they rigged the game, but that said, we previously showed there an infinite ways to rig CDOs by their nature.

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Lehman subpoenas Goldman Sachs

Whatever has been protecting Goldman Sachs since 2008 has finally given way.

(Bloomberg) -- Lehman Brothers Holdings Inc., which has been investigating whether any companies may have contributed to its bankruptcy, issued at least five subpoenas to investment firms and hedge funds including Goldman Sachs Group Inc., according to court filings.

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