As the subprime crisis was emerging on Wall Street, Goldman Sachs sold a client a slice of a complex security at a price nearly 50 percent higher than what the firm valued it for itself, according to a new Senate report on the origins of the financial crisis. Last week, another bank settled a similar case with securities regulators who accused it of “violating basic investor protection rules.”
In May 2007, Goldman sold Bank Hapoalim a $9 million slice of Timberwolf, a $1 billion instrument linked to subprime mortgages, at about 78 cents on the dollar. The Israeli-based bank did not know that Goldman’s internal valuations at the same time pegged the slice at just 55 cents on the dollar.
The purchase — the Israeli lender bought it at a 42 percent premium — is similar to one made by the Zuni Indian Tribe, which bought a comparable financial instrument from Wachovia in 2007 at 90-95 cents on the dollar even though the seller of the instrument, Wachovia, valued it on its own books before the sale at just 52.7 cents on the dollar.