SEC Lawsuit Against Goldman Sachs

On Friday April 16, 2010, it was widely reported that the SEC filed a civil lawsuit against Goldman Sachs Group Inc ("Goldman Sachs") alleging fraud in the construction and sale of a mortgage-backed securities product. The GFWM Investment Strategies team reached out to Goldman Sachs to better understand the scope of the inquiry and Goldman Sachs's position on the issue. In order to provide you with as much clarity around this situation as possible, we would like to share some insights based upon conversations with Goldman Sachs.

First, the product in question in the SEC suit was created and sold by the securities division of Goldman Sachs. This group is a separate division of Goldman Sachs and functionally unrelated to the investment management division which is responsible for the GFWM asset allocation models, Goldman Sachs mutual funds and sub-advisory services provided to the AssetMark Core Plus Fixed Income Fund.

Second, the transaction in question involved a privately-structured product that was traded by sophisticated institutional investors. In contrast, the Goldman Sachs Asset Management Asset Allocation Strategies on the GFWM platform are delivered through highly-regulated retail mutual funds, and the Goldman Sachs sub-advisory services to the AssetMark Core Plus Fixed Income Fund trade primarily in liquid fixed-income securities.

The GFWM Investment Strategies team will be meeting with Goldman Sachs at their headquarters in the coming weeks as GFWM accelerates their ongoing due diligence efforts in light of this news. Their due diligence process includes a deep examination of organizational and personnel structures both directly and indirectly related to the strategies provided through GFWM.

While we expect and believe this issue to have little direct relevance to asset management services provided to GFWM, please be assured that ChappelWood will continue to monitor the situation.