According to a weekend Wall Street Journal Article “Goldman Bet Contrasted With Clients”, the investment banking giant purchased puts on stocks for financial services companies such as Bear Sterns (now JP Morgan) and Washington Mutual (now Chase) during the summer of 2007. This preceded the dramatic market declines that began in the fall of 2007 and proceeded through 2008 and into the first quarter of 2009. This same decline in credit markets took down both Bear Stearns and Washington Mutual.
This information was revealed as part of the U.S. Senate inquiry into Goldman’s relationship with a hedge fund that took large bets on the mortgage market and profited handsomely. Goldman’s marketing and sale of complex derivatives tied to the same subprime mortgage market to their clients led the Securities and Exchange Commission (SEC) to bring fraud charges against Goldman. Goldman vigorously denies the charges and will be a interesting storyline to follow over the coming months.
The Goldman scandal is but the latest in a long line of Wall Street behaving badly stories that have cost investors billions of dollars. If you lost money related to investments in the subprime mortgage sector, please contact our office for a free case evaluation.