Rich Meier Part 2.

Goldman & Sachs was involved in a scam that in the end cost its investors to lose upwards of a total of one billion dollars. They way that the scam worked was by selling investors a security known as a collateralized debt obligation; a collateralized debt obligation is an investment-grade security backed by a pool of bonds, loans and other assets1. The CDOs that were marketed and sold to its investors were backed by residential mortgage-backed securities. The scam did not only involve Goldman & Sachs, but also one of the worlds largest hedge funds; Paulson & Co. Inc. A hedge fund is used to minimize the loses associated with owning securities, a common hedging strategy is buying a contract on that security that you own that pays you if the security performs poorly essentially giving you a low to no-risk portfolio. Paulson was involved by having Goldman buy short contracts on the securities through a third party, by purchasing short contracts you are betting that the securities will decrease in value therefore earning you a profit. Goldman furthered the scam by selling to its investors securities that it knew would perform poorly, which in fact would benefit Paulson due to its ownership of short contracts upon the CDOs. Goldman marketed its proposed collateralized debt obligations by failing to disclose Paulsons role in selecting the poorly valued securities, as well as Paulsons ability to earn substantial profits from the decline in the value of the securities. Goldman & Sachs expected to earn a profit of anywhere from fifteen to twenty million dollars for the structuring and selling of its CDOs. Goldman furthered the scam by

Definition from Investopedia.com

ensuring the company which rated the portfolio, ACA2, that Paulson had a long contract on the associated CDOs. A long position earns a profit only if the security it is taken out on appreciates in value, making Paulsons interests in alignment with the common investor. Had ACA been aware of Paulsons short contract they would not have agreed to attach their name to such portfolio. Goldman & Sachs not only mislead their own investors, but also a commercial German bank, IKB3. Goldman marketed its CDO securities to the bank as being verified by a third party selection committee, aforementioned ACA; which approved the CDOs with false knowledge about Paulsons position. Goldman also withheld the knowledge that Paulson was involved in the investment opportunity at all. Overall Paulson made out with a profit of one billion dollars from its investment in the short contracts of the CDOs, while the two main investors both of which were international banks lost $150,000,000 and $841,000,000 respectively. This scam was exposed by a lawsuit filed by the Securities and Exchange Commission, or SEC, in April of 2010. The SEC alleged that Goldman & Sachs mislead investors through deliberately communicated false information as well as deliberate omission of important facts.

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ACA Management LLC (ACA), a third party with expertise in analyzing credit risk IKB Deutsche Industriebank.