HARTFORD, Conn. (Legal Newsline) - Connecticut Attorney General Richard Blumenthal said Monday a state investigation may follow the allegations made Friday by the Securities and Exchange Commission against Goldman Sachs.

The SEC says Goldman Sachs marketed a synthetic collateralized debt obligation that hinged on the performance of subprime residential mortgage-backed securities, then failed to tell investors vital information about the CDO.

"The SEC's allegations read like a Sopranos episode," Blumenthal said.

"The SEC is accusing Goldman Sachs of constructing -- at hedge fund manager John Paulson's request -- securities designed to fail so that Paulson's hedge fund could make billions betting against them. It would be like Goldman selling consumers houses deliberately designed to collapse just so Paulson could collect the insurance."

Blumenthal said there may be a factual and legal basis to consider a state investigation of allegations related to the SEC's action.

He said his office has begun a preliminary review.

Friday, Goldman Sachs responded to the SEC's complaint, noting it lost $90 million on the transaction being scrutinized.

Goldman Sachs also claimed it provided extensive information about the mortgage securities to IKB, a large German bank that participated in the CDO Market, and investor ACA Capital Management.

ACA selected the portfolio of mortgage-backed securities, the company said.

Blumenthal is running for U.S. Senate.

From Legal Newsline: Reach John O'Brien by e-mail at jobrienwv@gmail.com.