I think your link and the actual SEC charges [1] are saying slightly different things. The portfolio backing the synthetic CDO was constructed by a Goldman client (Paulson and Co, a hedge fund) specifically so they (Paulson) could short it. That's fine. But the marketing material [2] for the CDO they used to sell the long end to clients makes no mention of Paulson and it specifically says that the portfolio was selected by another company (ACA Management) and that ACA had "commitment to long-term bondholder and counterparty security". If you flip through the slide deck (it's actually pretty readable) you find many slides dedicated to talking about ACA and its bona fides.
That was the fraud. It told its clients the portfolio had been created by someone who was trying to put together a reasonable-ish CDO when in fact it had been put together with the exact opposite in mind. I will also point out that there are no claims by the SEC that Goldman itself was short the CDO.
Thank you, your description does make Goldman Sachs sound to me like a boiler room operation to identify marks (or muppets if you prefer), who can be sold doomed products in order to make money for GS and their real customers (people like Paulson). I can't imagine why anyone does business with such sharks unless they have to, and it does sound like it could be legislated against. I'll have a read of the documents so I understand it better though.
That was the fraud. It told its clients the portfolio had been created by someone who was trying to put together a reasonable-ish CDO when in fact it had been put together with the exact opposite in mind. I will also point out that there are no claims by the SEC that Goldman itself was short the CDO.
1. http://www.sec.gov/news/press/2010/2010-123.htm
2. http://www.math.nyu.edu/faculty/avellane/ABACUS.pdf