Goldman Sachs Group’s $2 billion Hudson Mezzanine collateralised debt obligation (CDO), sold in 2006, is the target of a probe by the Securities and Exchange Commission, according to a source.
The inquiry into the CDO may not lead to any additional actions against the New York-based securities firm, said the person, who declined to be identified because the investigation isn’t public. Michael DuVally, a spokesman for Goldman Sachs, declined to comment, as did SEC spokesman John Nester. The Financial Times reported the probe yesterday.
Goldman Sachs shares have fallen 26 per cent since the SEC filed a fraud lawsuit against the firm on April 16 that related to its 2007 sale of a CDO called Abacus. Senator Carl Levin, a Michigan Democrat, said in April that Goldman Sachs’s sales of CDOs such as Hudson raised “a real ethical issue”.
“The ethical issue is valid, but Goldman isn’t the only investment bank” that sold CDOs, said Ambrose Chang, a Hong Kong-based fund manager at Daiwa SB Investments. “After the financial crisis, all Wall Street banks’ reputations have been fundamentally damaged,” he added.
CDOs parcel fixed-income assets such as bonds or loans and slice them into new securities of varying risks, providing higher returns than other investments of the same rating.