According to Reuters underwriters or sponsors of asset-backed securities would be banned for one year from taking positions to profit from investors' losses under a plan released by U.S. securities regulators on Monday.
The proposal by the Securities and Exchange Commission would get at the very heart of issues raised by U.S. Senate investigators in a report earlier this year that accused Goldman Sachs of positioning itself to profit from clients' losses on complex securities that it packaged and sold. The proposal would also prohibit the kinds of conflicts that were seen in the SEC's civil case against Goldman in 2010 by banning third parties from helping assemble an asset-backed pool that would let those parties profit from investors' losses.
In the Goldman case, the SEC accused the bank of creating and marketing a CDO known as ABACUS 2007-AC1 without telling investors that hedge fund Paulson & Co helped choose the underlying securities and was betting against them. Goldman later settled the case for $550 million.
The SEC's proposal, expected to be put out for public comment later on Monday, would implement a provision in the Dodd-Frank Wall Street overhaul law that sought to prevent big banks from betting against financial products that they package and sell to investors….
Read more about it at http://www.huffingtonpost.com/2011/09/19/sec-plan-would-ban-underwriters-taking-profits-investors_n_969687.html
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