Report: Goldman bet against own products

NEW YORK, Nov. 1 (UPI) -- U.S. investment bank Goldman Sachs didn't disclose it was making secret bets against its own toxic mortgage securities, McClatchy News Service reported Sunday.

Goldman's undisclosed hedges against losses from the more than $40 billion in securities backed by at least 200,000 risky home mortgages it sold in 2006 and 2007 enabled it to pass most of its potential losses on to customers such as pension funds before the housing bubble collapsed, but they may have violated securities laws, McClatchy reported.

"The Securities and Exchange Commission should be very interested in any financial company that secretly decides a financial product is a loser and then goes out and actively markets that product or very similar products to unsuspecting customers without disclosing its true opinion," Boston University economic Professor Laurence Kotlikoff told the news service. "This is fraud and should be prosecuted."

Columbia University law Professor John Coffee said bankers have much freedom to manage their assets, but added, "It would look much more damaging if it appeared that the firm was dumping these investments because it saw them as toxic waste and virtually worthless."

Lloyd Blankfein, Goldman's chairman and chief executive, declined McClatchy's requests to be interviewed.