Paulson & Co. has not been accused of any wrongdoing in the Goldman Sachs collateralized debt obligation fraud case. But that doesn’t mean the $32 billion hedge fund won’t stay out of court.
The New York-based firm—the world’s third-largest hedge fund manager—could face lawsuits over its role in the alleged fraud at Goldman, Institutional Risk Analytics’ Christopher Whalen told Bloomberg Radio.
“I’m not sure they will escape civil litigation arising from this,” Whalen, who covers banks, said. “You can bet the parties who lost money here are going to be seeking redress.”
Paulson on Friday said it had no authority over the selection of mortgage-backed securities included in the CDO. The Securities and Exchange Commission has alleged that Paulson played “a significant role” in choosing what went into ABACUS 2007-AC1 and paid Goldman $15 million to structure and market the CDO.
“If Paulson was intentionally putting dreck into the CDO, and doing so for the purpose of shorting it, then that could constitute fraud,” Ross Intelisano, a lawyer and veteran of hedge fund litigation, told Bloomberg News. “If I were repping a Goldman client, I’d likely include Paulson in a suit.”
“Paulson did not sponsor or initiate Goldman’s Abacus program, which involved at least 20 transactions other than that described by the SEC’s complaint,” Paulson said in a statement. Goldman, which has been charged with misleading investors about Paulson’s role in constructing the CDO, has also denied any wrongdoing.