Here’s the question :
Did Goldman Sachs not allege that ACA (And their partner IKB) KNEW the instruments that were going to be part of the ABACUS deal and had a hand in structuring that deal as well ?
In other words,ACA was well informed as to the collateral in the CDO, and in fact selected the collateral with Paulson.
Did Goldman Sachs not allege that if their intent was to defraud ACA, they would not have joined them in the long side of the deal ( they claimed that they themselves LOST MONEY to the tune of $94 Million on this CDO ).
According to this article :
http://www.realclearmarkets.com/articles/2010/04/23/dont_falsely_blame_goldman__paulson_98434.html
On January 2007 Goldman approached ACA and proposed that it serve as the ‘Portfolio Selection Agent’ for a CDO transaction sponsored by Paulson. ACA previously had constructed and managed numerous CDOs for a fee and as of December 31, 2006, had closed on 22 CDO transactions consisting of $15.7 billion of assets.
On January 9, 2007, Goldman sent to ACA a list of 123 RMBS selected by Paulson. About the selections, an ACA analysis showed that it had previously purchased 62 of the securities on Paulson’s list.
On January 22, 2007, ACA sent an email listing 86 sub-prime mortgage positions for the fund. Of the 123 positions that were originally selected by Paulson, ACA rejected all but 55.
On February 2, 2007, ACA emailed Paulson and Goldman a list of 82 RMBS on which Paulson and ACA concurred. Finally, on February 26, 2007, Paulson and ACA came to an agreement on a reference portfolio of 90 RMBS for ABACUS 2007-AC1.
Clearly ACA had the opportunity to review and select all the securities, which indicates that neither Paulson nor Goldman can be blamed for the fact that ACA simply made a bad investment or failed to perform adequate diligence
IN OTHER WORDS :
Both Goldman Sachs and John Paulson entered into this much discussed investment opportunity to maximize value for their respective constituents, which is what participants in a free market capitalist economy should do. In this transaction, Goldman Sachs’s duty was to serve as a market maker whose job was to structure and execute a transaction to meet multiple client needs. Goldman did just that.
Paulson & Co.’s role was to act as a responsible fiduciary for its investors and earn a desirable return, which it did. ACA and IKB have a customer mandate to earn an appropriate return as well.
In this case, however, ACA and IKB’s investment selections resulted in approximately $1 billion in losses. Whether those losses were the result of poor investment selection or inadequate due diligence, neither Goldman Sachs nor Paulson & Co. is to blame. As such, it’s irresponsible and deceptive for the SEC, the media and politicians to hold Goldman and Paulson accountable.
Goldman did not disclose that Paulson a) had asked for this instrument to be created so that he could b) short the instrument, and he was going to short the instrument.
That’s material information. It was not disclosed, per SEC requirement in SEC 10(b), in particular 10(b)5-2.
Everyone who is flapping their arms and pointing at how much Goldman had of their deal, etc.... it simply blowing smoke. There was a material fact (several material facts) that Goldman did not disclose to ACA and the long-side clients of the deal. That’s a violation of 10(b). Period, full stop.