Washington, D.C. – Today, Congressman Joe Donnelly joined 59 colleagues in sending a letter to SEC Chairwoman Mary Schapiro asking regulators to widen their investigation into whether Goldman Sachs engaged in any fraudulent conduct when selling complex financial products known as synthetic collateralized debt obligations (CDOs).  Donnelly and his colleagues want regulators to determine if Goldman Sachs improperly profited from taxpayer assistance to AIG and, if so, to recover such funds.

On April 16, 2010, the SEC announced it was suing Goldman Sachs for defrauding investors who bought a specific synthetic CDO tied to subprime mortgages that was designed to fail.   In addition to this specific CDO, Goldman Sachs issued 24 other CDOs, 7 of which were insured by AIG which, in turn, lost billions of dollars on those products.  The letter sent by Congressman Donnelly and his colleagues asks the SEC to widen its investigation to include all 25 CDOs issued by Goldman Sachs.  To read a copy of the letter, click here.

“Many of the derivatives marketed by these firms were nothing more than legalized gambling on the scale of billions of dollars, and when the bets went bad, working families and small businesses were stuck with the tab as our economy was pushed to the brink,” said Donnelly.  “If Goldman Sachs is found responsible, I want to know how much money they made off AIG, and how much of that money belongs to American taxpayers.  I want to ensure that any money they fraudulently made off this scheme is returned to the American people.”

Congressman Donnelly, a member of the House Financial Services Committee, has long been critical of Wall Street’s riskiest practices.  On December 11, 2009, Donnelly joined the House in passing the Wall Street Reform and Consumer Protection Act of 2009 which would for the first time place the $600 trillion market for derivatives, including CDOs, under regulation by federal authorities. 

On Tuesday, during a Financial Services committee hearing, Donnelly questioned Treasury Secretary Timothy Geithner about the use of CDOs, including what legitimate value they add to our markets and the economy and why these risky products are necessary.

“The unregulated trading of synthetic CDOs caused great damage to our credit markets,” said Donnelly.  “This type of financial risk taking, which is simply Wall Street gambling, shouldn’t be committed.”

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