Where oh where is the OSC!!!!! Wouldn't it be nice if the OSC took a more serious look at how Severstal manipulates HRG. What a real shame when you see companies like SEMAFO with a 1.5 BILLION market cap.
April 16 (Bloomberg) -- Gold and commodities including crude and sugar tumbled after the U.S. Securities and Exchange Commission filed a fraud suit against Goldman Sachs Group Inc., one of Wall Street's biggest traders and brokers of raw materials.
"This is not good for commodities," said Michael Pento, the chief economist at Delta Global Advisors who correctly predicted the 2008 price collapse in raw materials. "It could be the case that traders stop making trades with Goldman."
The SEC alleged that Goldman structured and marketed collateralized debt obligations that hinged on the performance of subprime mortgage-backed securities. The firm failed to disclose to investors that hedge fund Paulson & Co. was betting against the CDOs and influenced the selection of securities for the portfolio, the SEC said. Paulson wasn't accused of wrongdoing.
As of Feb. 28, Goldman was the largest commodity brokerage by adjusted net capital, the minimum needed to meet the capital requirements set by the Commodity Futures Trading Commission, according to data from the agency. The investment bank's shares tumbled as much as 16 percent.
As of Dec. 31, Paulson was the largest holder of the SPDR Gold Trust, the biggest exchange-traded fund back by the metal, and Goldman was the 11th biggest. Both are based in New York. Paulson is also the top investor in AngloGold Ashanti Ltd., Africa's largest producer of bullion.
Gold futures slumped as much as 2.6 percent. The Reuters/Jefferies CRB Index of 19 raw materials fell 1.4 percent to 277.75 at 12:57 p.m. New York time, poised for the biggest decline since Feb. 23.
'Big Bettor'
"Paulson has been a big bettor on gold," said Pento, who also helps create investment vehicles, including agriculture ETFs. "If this fetters the ability of the fund to keep adding positions, or forces them to do some asset sales, it's going to be bad."
Paulson wasn't included in the fraud charges because it didn't make misrepresentations to investors about collateralized debt obligations, Robert Khuzami, an enforcement director at the SEC, said on a conference call.
Stefan Prelog, a Paulson spokesman, said he couldn't comment. The company oversees $32 billion.
Goldman said the claims by the SEC are "completely unfounded."
"When you implicate the largest player on the Street, nothing good can come of it," said Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter. "I'm a hedge fund manager, and I have to manage the drama taking place. The best place to go is to the sidelines."
Silver prices dropped as much as 4.3 percent. Crude oil headed for the biggest decline in 10 weeks.
'Fear of Unknown'
"Anybody who has anything to do with, touches, feels, smells Goldman, they're getting out," said Ron Lawson, a managing director at Logic Advisors in Sonoma, California. Commodities are falling "on the fear of the unknown," he said.
U.S. stocks slumped, halting a six-day rally, and European stocks plummeted.
"The news has hit like a bomb on the financial and commodity markets," said Michael McDougall, a senior vice president at Newedge USA, a broker in New York.
Some analysts said markets will rebound and the fraud case will have a limited impact on Goldman.
"This is not a backbreaker for Goldman," said Michael Guido, the director of hedge-fund sales at Macquarie Capital USA Inc. in New York. "They're going to get fined and the markets will move on."
Before today, the CRB index fell 1.3 percent this year, while gold gained almost 6 percent.
"Any time things go legal and legislative, some people do see it as the time to put the lid on things and get out of the markets, but this will be short-lived," said Pete Sorrentino, who helps manage $12.8 billion at Huntington Asset Advisors in Cincinnati. "There are a lot of other trading houses that will be able to step in and provide liquidity."
--With assistance from Joshua Gallu, Christine Harper, Rob Williams, Debarati Roy and Yi Tian in New York. Editors: Patrick McKiernan, Steve Stroth
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