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The scheme was to sell toxic asset-backed securities (ABSs) to unwary customers (including foreign banks, pension funds, insurance companies and others), then apparently use credit default swaps (CDSs) to profit when they defaulted, or in other words the equivalent of buying life insurance on an undisclosed terminally ill patient. More still, given Paulson & Co.'s role in helping to structure and select assets, then buying CDSs to short them, betting they'll decline. Paulson thus far faces no charges. Goldman's so far are civil. If criminal ones are filed, prosecutors will have to prove intent, perhaps coming given enough evidence to proceed.
On April 19, Wall Street Journal writers Carrick Mollenkamp, Serena NG, Gregory Zukerman, and Scott Patterson headlined, "SEC Investigating Other Soured Deals," saying:
Besides Goldman, the SEC "is investigating whether other mortgage deals arranged by some of Wall Street's biggest firms may have crossed the line into misleading investors."
Definition of Fraud
Black's Law Dictionary, 5th edition, 1979 defines fraud as follows:
"All mutifarious means which human ingenuity can devise, and which are resorted to by one individual to get an advantage over another by false suggestions or suppression of the truth. It includes all surprises, tricks, cunning or dissembling, and any unfair way which another is cheated."
The legal-dictionary.thefreedictionary.com/fraud calls it:
"A false representation of a matter of fact - whether by words or by conduct, by false or misleading allegations, or by concealment of what should have been disclosed - that deceives and is intended to deceive another so that the individual will act upon it to her or his legal injury."
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