Are you sophisticated?

27 May 2010

Banks often say that clients who lost money with the firm were sophisticated investors look at Goldman Sachs rebuttal of the SEC s subprime charges. But the word inverted into a badge of idiocy in the credit boom. The smart money exploited the twist with devastating effect.

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Goldman Sachs has vigorously rejected allegations by the U.S. Securities and Exchange Commission that it committed fraud in facilitating a controversial subprime mortage trade in 2007, which generated heavy losses for German lender IKB and the UK's Royal Bank of Scotland.

In its response to the SEC, Goldman said: "IKB, a large German Bank and sophisticated CDO market participant and ACA Capital Management, the two investors, were provided extensive information about the underlying mortgage securities. The risk associated with the securities was known to these investors, who were among the most sophisticated mortgage investors in the world."

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