The fraud lawsuit involving Fabrice Tourre and Goldman Sachs may be just the tip of the iceberg for Wall Street. On April 16, the SEC accused Tourre, a VP at Goldman Sachs, and the bank of creating and selling high-risk collateralized debt obligations tied to mortgages without disclosing to investors the role of a hedge that helped picked the underlying securities and then bet against them to fail.
A number of analysts now say the probe may prompt additional investigations in CDOs at other Wall Street firms.
“This is probably just the tip of the iceberg,” said Chizu Nakajima, director of the Centre for Financial Regulation and Crime at Cass Business School in London, in an April 19 article in Investment News. “As far as other financial institutions are concerned, they are obviously very worried. If the SEC’s action is actually successful, it could well open up the gates to other litigation worldwide.”
Besides Goldman Sachs, at least 20 banks arranged more than $400 billion CDO deals in 2007 – the same time that the U.S. housing market began to collapse. Citigroup was the leader of those deals, followed by Merrill Lynch and Deutsche Bank, according to the Investment News story.
The New York Post reported this morning that the SEC is now investigating transactions structured by other big players in the CDO market, including Deutsche Bank, UBS and Merrill Lynch.