The US Securities and Exchange Commission (SEC) rocked the financial world on Friday, April 16, with the announcement it was charging Goldman Sachs with fraud. The Wall Street bank's shares plummeted on the news, and the resulting shock waves rippled through markets across the world.
Essentially, Goldman Sachs is accused of selling sub-prime mortgage-backed securities that were intentionally designed to lose money for investors. These bogus products ended up costing the bank's clients a billion dollars while the manager of the hedge fund, Paulson & Co., pocketed the same amount in profit.
More blows may soon fall on Goldman Sachs. Both UK Prime Minister Gordon Brown and Germany Chancellor Angela Merkel gave strong indications over the weekend that their respective governments would look into the matter and see if charges would be pursued. The US Congress has also called for further investigations into the bank's activities.
The currency markets have responded with the dollar strengthening versus the euro, pound and minor dollars, while the yen rallies on its safe-haven reputation as risk aversion spreads.
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