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As ACA Sues Goldman Over Abacus, A Question Emerges: Did The SEC Hide A Damning Piece Of The Prosection Against Goldman?

Tyler Durden's picture




 

That ACA is suing Goldman over Abacus, as Charlie Gasparino first reported, is not surprising. After all, everyone wants a piece of free lunch, especially when there is a case in the docket. What is however surprising, is that according to plaintiff lawyer Marc Kasowitz, ACA has ‘documents that show Goldman Sachs told ACA Paulson was long on the ABACUS investment.’ If this is indeed the case, this becomes a clear case of fraud, pure and simple, no question about it, with clear intent to misinform, and is not even remotely defensible by Lloyd Blankfein's statement to Carl "Shitty Deal" Levin, that Goldman was merely making markets. If this piece of paper does exist, there is clear intent to misrepresent, and what is stunning is that this never was made clear during the SEC trial. Since we can assume that the SEC had access to this information, and had this been exposed, it would have made settlement virtually impossible as it would have clearly but Goldman in the position of having broken the law, we can merely validate once again, that the SEC is nothing short of Goldman's latest public-private acquisition a la Facebook.

From Fox Business Network:

On the lawsuit filed by ACA Capital against Goldman Sachs:

“FOX Business Network has learned on of the investors, ACA Capital is suing Goldman Sachs for 120 million dollars for in compensatory and other damages. The lawsuit does follow the SEC case pretty closely. It says ACA had no idea that John Paulson, the big hedge fund guy, that he was actually putting together this deal and shorting this deal. Where it goes further than the SEC case is they have emails where Goldman Sachs is clearly in the loop with ACA and ACA is clearly under the belief that Paulson is long the portfolio, not short and what these emails show is that Goldman did not correct ACA Capital in this belief.”
 
On ACA Capital’s allegations against Goldman Sachs:

“I spoke with Marc Kasowitz the attorney for ACA Capital. He said ‘we have documents that show Goldman Sachs told ACA Paulson was long on the ABACUS investment.’ That takes it a step further that there are documents where Goldman explicitly is telling ACA Capital that Paulson is long when in fact we all know that he is short.”

 

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Thu, 01/06/2011 - 16:35 | 853743 orangedrinkandchips
orangedrinkandchips's picture

"kill em all"

great album

Thu, 01/06/2011 - 16:44 | 853776 unwashedmass
unwashedmass's picture

 

oh, please. of course, the SEC hide the info. Who the hell are we kidding anymore? The SEC has been totally co-opted. They do what they are told when they are told. And if Lloyd says jump,

they say, should I stick the evidence up my ass while I'm in the air for you?

Thu, 01/06/2011 - 16:56 | 853827 orangedrinkandchips
orangedrinkandchips's picture

exactly...It is more than obvious they saw this shit but didnt do anything about it. It's like a builder that makes a mess of a new house instead of backing up and doing it right. Too much at stake to fix and the consumer cant do anything to them anyway.

 

They know it and cover it up since it's a mess. Shit, 120mm is not jack to GS.

 

120mm IS WHAT THEY PAY THE "ANALYST" IN GLORY HOLE ON THE 5TH FLOOR FOR ALL THE CDS TRADERS AS A BENEFIT.

 

 

Thu, 01/06/2011 - 16:56 | 853829 orangedrinkandchips
orangedrinkandchips's picture

exactly...It is more than obvious they saw this shit but didnt do anything about it. It's like a builder that makes a mess of a new house instead of backing up and doing it right. Too much at stake to fix and the consumer cant do anything to them anyway.

 

They know it and cover it up since it's a mess. Shit, 120mm is not jack to GS.

 

120mm IS WHAT THEY PAY THE "ANALYST" IN GLORY HOLE ON THE 5TH FLOOR FOR ALL THE CDS TRADERS AS A BENEFIT.

 

 

Thu, 01/06/2011 - 16:57 | 853830 orangedrinkandchips
orangedrinkandchips's picture

exactly...It is more than obvious they saw this shit but didnt do anything about it. It's like a builder that makes a mess of a new house instead of backing up and doing it right. Too much at stake to fix and the consumer cant do anything to them anyway.

 

They know it and cover it up since it's a mess. Shit, 120mm is not jack to GS.

 

120mm IS WHAT THEY PAY THE "ANALYST" IN THE GLORY HOLE ON THE 5TH FLOOR FOR ALL THE CDS TRADERS AS A BENEFIT.

 

 

Thu, 01/06/2011 - 16:37 | 853746 Confused
Confused's picture

Any reason this didn't come out sooner? Sorry if thats a dumb question. 

Thu, 01/06/2011 - 16:38 | 853756 Tyler Durden
Tyler Durden's picture

Yes. Next question

Thu, 01/06/2011 - 16:40 | 853761 Confused
Confused's picture

Fair enough. Will it make a difference? The problem is clear, who is going to listen? 

Thu, 01/06/2011 - 17:18 | 853921 knukles
knukles's picture

Nobody.

Thu, 01/06/2011 - 17:50 | 854013 hbjork1
hbjork1's picture

Folks, "shity deal Leviin" is one of my two Senators.  And I have a Representative who's staff might pass on a sentiment.  As soon as I can  reference tthe suit in the popular press, I will be sending e-mails. 

For the Representative, it might be a "snail mail" letter if I don't get too tied up with other things. 

Everybody here has a Representative and two Senators.   

As always, thanks to ZH.

Thu, 01/06/2011 - 16:37 | 853749 Ragnarok
Ragnarok's picture

And nothing will come of this.....  Nature's law is the only one that will apply itself.... given time.

Thu, 01/06/2011 - 16:45 | 853785 buzzsaw99
buzzsaw99's picture

the squid owns it all baby!

Thu, 01/06/2011 - 16:49 | 853791 TideFighter
TideFighter's picture

This is far from being news.

http://www.dailyfinance.com/story/investing/goldman-sachs-fraud-testimon...

They obviously had the documents back in April.

Thu, 01/06/2011 - 16:55 | 853804 Confused
Confused's picture

.

Thu, 01/06/2011 - 16:56 | 853825 DaveyJones
DaveyJones's picture

.

Thu, 01/06/2011 - 16:53 | 853806 Confused
Confused's picture

"SEC has testimony from a Paulson & Co. executive who says he informed ACA that Paulson was planning to short Abacus"


Unless I'm missing something, this article doesn't mention those documents at all. In fact, quite the opposite. Which is the whole point. 
Thu, 01/06/2011 - 16:59 | 853839 DaveyJones
DaveyJones's picture

you mean "long" is the opposite of "short?" I'm seeing what you're seeing

Thu, 01/06/2011 - 17:04 | 853859 Confused
Confused's picture

Yeah, I'm not sure if that article was really what the poster intended it to be.

 

Oh, and that was for a double post. Sorry.

Thu, 01/06/2011 - 16:49 | 853795 AnonymousMonetarist
AnonymousMonetarist's picture

My understanding was that the equity tranche was not part of the final deal, so not sure what the point is. The reference to Paulson  being long was conditional, in some initial memo. Yes? Was it in the final structure? Don't think so. That's damn weak stuff. Folks didn't read the final deal? Seriously?

The late great Mark Pittman once wryly noted that almost no one in the media knew what yield was. What do you think the odds are that these same folks have any clue as to how a structured offering is circled?

For folks that have never participated in a structured bond offering, who never saw the gurus whip up iterations on the back of napkins, who never witnessed slivers of equity being presented as burnt offerings to the rating agency Gods, the current pablum narrative would appear to be unassailable.

Now I wasn't privy to this deal getting circled but will hazard a guess as to what the equity tranche (Paulson going long in the intial) was all about...

Paulson was more than willing to put down a sliver of equity in order to secure the AAA, but once it was confirmed that the rating agencies would give the pixie dust lipstick without it, it went buh-bye...

The 'selection' process on almost any comparable structured product was a reverse engineering of the rating agencies 'models' that had been tinkered over time in collusion with their fee-paying clients for the end goal of getting the AAA on the selected pig.

That's the crime.

The rating agencies are the enemies of the people.

Thu, 01/06/2011 - 16:51 | 853802 A Man without Q...
A Man without Qualities's picture

Goldman told ACA that JP was "long", in that JP was retaining the equity tranche.  What they didn't mention is that as they didn't own the reference assets, this was actually a naked short.  It's a question of style over substance, I suppose.  

Thu, 01/06/2011 - 16:59 | 853811 TruthInSunshine
TruthInSunshine's picture

120 million dollar lawsuit?

 

Pfffft.

 

That's one day's POMO commission, selling Treasuries to The William Dudley, for Goldman Sachs.

Thu, 01/06/2011 - 17:01 | 853849 DaveyJones
DaveyJones's picture

good point. Jail and lots of it is the only solution to most of this mess. Starting with the SEC

Thu, 01/06/2011 - 17:32 | 853966 Cdad
Cdad's picture

Correct.  The SEC needs to receive the fire hose treatment first.  I'm sure our brave Republicans newly elected to the House of Representatives are going to get right on that ;)

Mary Shapiro is still in meetings with L. Blankfein about which SEC laws he thinks she should forget about, and which laws he thinks it's ok for her to enforce. 

It is going to be so fun over the next ten years watching everything fall apart because no one has the stones to do what actually needs to be done.  Fun, fun, fun.

But who cares?  It is only our children's enslavement we are talking about.

Thu, 01/06/2011 - 16:55 | 853820 firstdivision
firstdivision's picture

Goldman's defense will be that Paulson & Co. held the junk tranche as a sign that they were long the security. 

Thu, 01/06/2011 - 16:56 | 853828 firstdivision
firstdivision's picture

Goldman's defense will be that Paulson & Co. held the junk tranche as a sign that they were long the security. 

Thu, 01/06/2011 - 17:03 | 853862 steelhead23
steelhead23's picture

I believe Paulson was long on Abacus - only his shorts dwarfed his stake in the deal.  I suspect that GS will moot the case by paying up.  Like someone above said, more than this is stuck in Blankfein's office couch.

Thu, 01/06/2011 - 17:23 | 853880 TruthInSunshine
TruthInSunshine's picture

Paulson was short ABACUS, as he was in on its formation, as an instrument/pool designed to implode, from inception.

Tyler's piece has it correct: ‘documents that show Goldman Sachs TOLD ACA Paulson was long on the ABACUS investment.’

So, the accusation is that Goldman told ACA Paulson was long *contrary to Paulson's real position - which was a material and overt lie*.

Goldman had gotten some wankers in credit ratings to rebrand toxic sludge MBS - the worst of the worst/we're talking NINJA shit here - as investment grade and even prime.

Paulson was told all of this, as Goldman sold the ABACUS cesspool to their other valued 'investor clients,' helping Paulson rake in a ton of cash.

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7599970/...

Having decided to create a CDO to allow investors to invest in a potential increase in the value of sub-prime mortgages – which Paulson would then short – Goldman needed independent validation that what it was selling was kosher. Step forward ACA Management, a specialist in analysing credit risk owned by ABN Amro, the Dutch investment bank.

But although ACA was recruited as the ultimate “portfolio selection agent” of the mortgages within the Abacus derivative for its “credibility”, unbeknown to it – or future investors – Paulson is alleged by the SEC to have initially handed Goldman a list of 123 residential mortgage-backed securities (RMBS) to be considered for inclusion.

The 123 RMBS were based on Paulson’s selection criteria of those most likely to default – and so included mortgages from borrowers with low credit scores, and from states which had seen high rates of house price appreciation, states like Arizona and Florida which have since seen high repossession levels.

 

Thu, 01/06/2011 - 17:10 | 853888 Pladizow
Pladizow's picture

Any and all regulatory bodies including the SEC and the US Senate/ Congress/ Government are all Goldman's BITCH!

Show me anything to the contrary!

Thu, 01/06/2011 - 17:16 | 853910 DaveyJones
DaveyJones's picture

why stop at U.S. borders. They seem to be in with all sorts of corrupt leaders, helping them hide shit while ripping them off. And by them I mean all the us(s)

Thu, 01/06/2011 - 17:23 | 853948 goldmiddelfinger
goldmiddelfinger's picture

That would be sooo sweet

Thu, 01/06/2011 - 17:24 | 853950 TheProphet
TheProphet's picture

Same shit that went on with the subprime CDSs and CDOs. Goldman was putting together CDSs and CDOs they knew consisted of worthless shit, and then concocting research on the CDS tranches for Moody's, sending the package to them, and saying "this is A- paper, right?"

Moody's took the research at face value and rubber-stamped it as A paper. Goldman then made a market selling insurance on A- rated paper they knew was all worthless.

Then, as now: This is not being a market maker. This is overtly criminal. 

Thu, 01/06/2011 - 17:36 | 853980 Cdad
Cdad's picture

It stands to reason that a criminal syndicate of bankers that have been polluting everything within our financial sysmem for the last 30 years [at least] would be engaged in "overtly criminal" behavior.

This is why I take great care to refer to these people as exactly what they are, the criminal syndicate known as Wall Street.

Thu, 01/06/2011 - 18:02 | 854052 drbill
drbill's picture

YAWN..... I would consider a headline something to the effect of, "Goldman NOT accused of fraud" to be shocking and news worthy.

Thu, 01/06/2011 - 18:02 | 854053 chubbar
chubbar's picture

Every swinging dick at the SEC who has the ability to throw a wrench into this scam has been co-opted. They all dream of the 7 figure payoff working for one of the majors. Case in point but not directly related. Look at Chris Dodd or Judd Gregg (Dodd was thrown out but Gregg quit). I have a hundred bucks that both of these asshats are collecting 7 or 8 figure incomes working in some capacity for the banking interests within 6 months. It's the payoff for being good little boys and voting appropriately to protect the status quo.

There is no way back to a system that works and is fair. It is going to blow up. I only hope the disenfranchised, the guys who can't handle the stress and decide to go out swinging, figure out who to direct their anger at.

Thu, 01/06/2011 - 18:09 | 854082 Bastiat
Bastiat's picture

Yep, every swinging dick at the SEC has a chain on it that leads to Jamie or Lloyd.

Thu, 01/06/2011 - 19:05 | 854130 streetman
streetman's picture

ACA is the only true fiduciary in this transaction, whether they were "recruited" or not. They knew that Paulson would be providing the reference exposures synthetically (which by definition had to be agreed by both parties, regardless of which party's list you start with) because that's what a synthetic CDO is, whether JP was starting with a long position or starting flat.  They also knew JP was buying the equity portion, which should not have provided any comfort, again, because that's how almost all these deals got done.  If they thought JP was going to turn around and buy some ABACUS seniors (as if), so what, other than the absurdity of their reasoning (why would they?).  If instead they thought somehow that JP was starting with a long position (which still had to be CDS), again, so what, they were selling now.  They also knew that if they didn't agree to the provider's list, they wouldn't earn a fee.  There absolutely could not have been any confusion about any of this.  Any suggestion to the contrary means that either ACA is either criminally negligent, and thus liable to investors (probably), or criminally stupid, which wasn't the case.  The fact that they're all but out of business with no real assets didn't make them as tempting a target, or as headline worthy, as GS was for the SEC.  The idea that some email is just coming up in discovery now is silly, we've seen the emails and the "confusion" on the part of the ACA analyst before.  

Thu, 01/06/2011 - 19:38 | 854339 Common_Cents22
Common_Cents22's picture

When looking around the poker table and you don't see the obvious mark, you are it.

Thu, 01/06/2011 - 19:39 | 854340 rocker
rocker's picture

Surely somebody at the SEC worked for GS at one time or another, right ?

Thu, 01/06/2011 - 23:16 | 854945 Buck Johnson
Buck Johnson's picture

And the reason why the SEC is so helpful to the big bankers, is because how can you compete with a govt. salary and their counterparts with the big banks making millions a year.  They want to be working for these companies too, so a little quid pro quo doesn't hurt.

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