Goldman Sachs Lawsuit

The initial lawsuit against Goldman Sachs (as well as Fabrice Tourre) was filed by the SEC in April of 2010, alleging that GS and Tourre made misleading statements and omissions revolving around the ABACUS 2007-AC1 synthetic RMBS backed CDO. The crux of the case revolved around the premise that GS did not disclose to investors that a hedge fund, Paulson & Co., was instrumental in selecting the reference portfolio. After playing a role in the selection of the portfolio, Paulson & Co. shorted the CDO by entering into a CDS to provide protection against a future credit event. The SEC alleged that, given its short position, Paulson & Co. had incentive to select a portfolio with a high likelihood of failure. It also alleges that, should investors have known of Paulson's role in the selection process, these investors would not have participated in the CDO.

It was mentioned last night that you could find a copy of the actual ABACUS 2007-AC1 flipbook on-line. Here is the link. Warning it can be a little slow.

http://www.scribd.com/doc/30036962/Abacus-2007-Ac1-Flipbook-20070226

In June of 2010 the SEC began an inquiry into a second Goldman Sachs security, the Hudson Mezzanine CDO, a $2 Billion CDO sold in 2006. Similar to the ABACUS 2007-AC1 CDO, Hudson was based off sub-prime, BBB rated RMBS. All of the RMBS that were involved were selected by GS, however GS was also the only investor to purchase credit protection and maintain a short position against the CDO. It was unclear if there would be any action taken towards Goldman Sachs based on this investigation.

http://www.bloomberg.com/apps/news?pid=20601010&sid=aSNYXMe69Kh8