Bloomberg News

Goldman Sachs Opposes ACA Bid to Add Paulson to CDO Case

January 14, 2013

Goldman Sachs Group Inc. (GS:US) accused ACA Financial Guaranty Corp. (MANF:US) of withholding thousands of audio recordings the investment bank wants in its fight against a lawsuit over a collateralized debt obligation called Abacus.

Goldman Sachs asked a New York state judge in court papers Jan. 11 to order bond insurer ACA to produce the recordings, pointing to one phone call that it says “utterly eviscerates” ACA’s claims.

“ACA’s unjustified withholding of the additional recordings impedes Goldman Sachs’ ability to challenge, and the court’s ability to examine,” the claims in the case, the New York-based company said.

Goldman Sachs’s bid for the recordings comes after ACA sought court permission to file a revised complaint that adds hedge fund Paulson & Co. as a defendant. ACA claims Goldman Sachs and Paulson conspired to induce it to provide financial guaranty insurance for Abacus.

ACA claims it was deceived into believing that Paulson was a long investor in the deal when the hedge fund was in fact betting against it. Goldman Sachs agreed to a $550 million settlement in 2010 with the U.S. Securities and Exchange Commission to resolve claims that it misled investors.

‘Doomsday’ Strategy

In its filing, Goldman Sachs quotes from a May 2007 call between an ACA portfolio manager and a bond trader at Morgan Stanley in which ACA is told Paulson was pursuing a “doomsday” strategy and betting against the mortgage market. The recording “demonstrates unequivocally” that ACA actually knew of Paulson’s shorting strategy, Goldman Sachs said.

Marc Kasowitz, an attorney for New York-based ACA, said in an interview that the call wasn’t about Abacus and was instead “anecdotal market chatter” about Paulson.

ACA, which is seeking to recover $120 million in damages, cites in its complaint a recording in which a Goldman Sachs managing director told ACA that Paulson was a “100 percent equity” investor in the deal. ACA has produced 6,900 recordings to Goldman Sachs and will turn over more as they become available, Kasowitz said.

“Goldman Sachs’s specific misrepresentation to ACA about Paulson’s ‘100 percent equity’ interest in Abacus trumps any anecdotal market ‘color’ by a third party,” Kasowitz said in a statement.

The case is ACA Financial Guaranty Corp. v. Goldman Sachs & Co., 650027-2011, New York State Supreme Court (Manhattan).

To contact the reporters on this story: Phil Milford in Wilmington, Delaware, at pmilford@bloomberg.net; David McLaughlin in New York at dmclaughlin9@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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Companies Mentioned

  • GS
    (Goldman Sachs Group Inc/The)
    • $179.11 USD
    • 1.46
    • 0.82%
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