Congressman Dave Loebsack writes to the Chairman of the SEC, Mary Schapiro, urging that the funds from the recent settlement between the SEC and Goldman Sachs be used to reimburse the City of Cedar Rapids, IA for their losses. The SEC was investigating Goldman's fraudulent investment activities and reached a settlement agreement of $550 million. The City of Cedar Rapids and Linn County were among the investors that were ultimately defrauded.
"The City and County lost money due to the reckless behavior of Goldman Sachs and their client, hedge fund manager John Paulson, and they deserve to get that money back," said Loebsack. "Through the Floods of 2008, and the economic downturn, the citizens of Cedar Rapids and Linn County have suffered. Yesterday, the President signed the Wall Street Reform bill, and today, I would like to further remind those on Wall Street that the ATM is closed. Wall Street fat cats cannot just gamble away Linn County taxpayers' hard-earned money and get away with it. This is unacceptable and we want our money back."
The SEC filed and pursued a civil suit against Goldman Sachs for the creation and use of the security Abacus 2007-AC1 (Abacus). Through their investigations the SEC found that this fund was created to fail, and that Goldman did not inform their clients that Abacus was created to enable hedge-fund manager John Paulson and Goldman to bet against the mortgage market. These actions essentially allowed Goldman Sachs to create a fund that was designed to fail, taking taxpayer's investments and gambling them away without consent.
In a recent TIME article, the citizens of Cedar Rapids and Linn County were highlighted as one of those clients who ultimately fell victim to Goldman's fraudulent activities. According to the TIME article, the City lost $2.6 million in a structured investment vehicle called Rhinebridge which also contained the Abacus security, and failed in 2007. In his letter, Loebsack requests that:
· the SEC use the settlement funds to reimburse the citizens of Cedar Rapids and Linn County for their loss
· the SEC continue to conduct investigations into this alarming situation
The full text of the letter is below:
July 22, 2010
The Honorable Mary L. Schapiro
Chairman
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
I write in regard to the recent $550 million settlement announced with Goldman Sachs as a result of your civil suit and fraud investigation focused on a security Goldman Sachs and hedge-fund manager John Paulson created in 2007 called Abacus 2007-AC1 (Abacus). I respectfully request you ensure funds from this settlement are used to reimburse investors who lost money and suffer the consequences through no fault of their own as a result of the actions of Goldman Sachs and others involved in setting up this security to fail without disclosing their intentions.
One such instance is the City of Cedar Rapids and Linn County, Iowa which were also the subject of a recent TIME Magazine article that wove the complicated tale of how the City and County came to bear the brunt of Goldman Sachs' and Mr. Paulson's fraudulent actions. The City, County, and the State of Iowa, also experienced the worst natural disaster in our history in 2008.
The Floods of 2008 left 85 of 99 counties presidentially declared disaster areas, caused billions of dollars in damage, and wrecked thousands of homes and businesses. Cedar Rapids suffered the most extensive damage of any city in the state. That the City and County, and therefore its citizens who have additionally suffered through this natural disaster, have lost money as a result of fraudulent actions related to Abacus is certainly one of the many tragedies caused by unchecked Wall Street gambling.
According to the TIME article, the City and County lost $2.6 million in a structured investment vehicle called Rhinebridge which also contained the Abacus security, and failed in 2007. One sentence from the article detailing the troubles summarizes succinctly the cause of the economic crisis we are faced with and its significant complexity: "How Kuzela and the other citizens of Cedar Rapids came to pick up the tab for Paulson's historic payday is key to understanding who wins and who loses every time Wall Street gambles."
While I applaud your investigation into this matter, I also hope that you will continue to pursue investigations into Goldman Sachs and other companies or individuals that created financial products contributing to the financial crisis. Additionally, I have asked the Department of Justice to look at this case and similar cases for potential criminal charges relating to fraudulent acts.
I also urge you to use the new authorities and resources provided to the SEC through H.R. 4173, the Wall Street Reform and Consumer Protection Act, which was signed in to law yesterday, to ensure such complex and fraudulent securities and actions do not continue.
Thank you for your time and attention to this matter. While I understand the City and County are working on a settlement with Wells Fargo Brokerage Services LLC, which initially advised the City on its investment, ultimately it seems the actions of Goldman Sachs were also the cause of the investment loss. I again respectfully urge you to ensure that the final details of this settlement ensure investors like the City of Cedar Rapids and Linn County who were ultimately defrauded as a result of Abacus' construction to fail are compensated.
If this type of arrangement is not included in the settlement and you do not believe it would be warranted, I would ask that you provide my office with an explanation of why you believe an arrangement for compensation is not within the scope of your settlement with Goldman Sachs. Additionally I would appreciate receiving information on whether or not Mr. Paulson is being investigated for his role in this matter.
Sincerely,
Dave Loebsack
Iowa's Second District