Read the SEC’s case against Goldman Sachs and their french credit trader Fabrice Tourre here.

In summary, the SEC alleges, in a civil suit, that Goldman knowingly puffed a synthetic CDO to clients that had been designed to fail.

Indeed, Abacus 2007-AC1 had been created in February 2007 at the request of John Paulson, the hedgie who was busy shorting subprime every which way he could find at the time.

Abacus 2007-AC1, in short, was designed to fail. Paulson selected the pieces of toxic subprime which he wanted to short. These were then packaged together and sold on to Goldman clients.

Central to the SEC’s case is the allegation that investors in this CDO were told the components were chosen by an independent third party.

Paulson, by inference, was anything but “indepdendent,” although he has not been charged with any wrongdoing by the SEC.

[19:30 GMT] Update: Paulson Statement

As the SEC said at its press conference, Paulson is not the subject of this complaint, made no misrepresentations and is not the subject of any charges.

While Paulson purchased credit protection from Goldman Sachs on securities issued under the ABACUS ABS CDO program, we were not involved in the marketing of any ABACUS products to any third parties.

ACA as collateral manager had sole authority over the selection of all collateral in the CDO, securities of which were subsequently rated AAA by both S&P and Moody’s.

Paulson did not sponsor or initiate Goldman’s ABACUS program, which involved at least 20 transactions other than that described in the SEC’s complaint.

Related links:
U.S. Accuses Goldman Sachs of Fraud – NYT

This entry was posted by Paul Murphy on Friday, April 16th, 2010 at 16:03 and is filed under Uncategorised. Edit this entry.