Goldman: Expect More Paulson CDO Lawsuits

May 11 2010 | 11:43am ET

Goldman Sachs will face more lawsuits and further investigations over its role in structuring a collateralized debt obligation for hedge fund Paulson & Co., the Wall Street giant said yesterday.

In its quarterly filing with the Securities and Exchange Commission—which has accused Goldman of fraud in the $1 billion 2007 transaction—the bank said that the SEC lawsuit, criminal probe and six shareholder lawsuits could be only the beginning.

“We anticipate that additional putative shareholder derivative actions and other litigation may be filed, and regulatory and other investigations and actions commenced against us with respect to offering CDOs,” it said.

The SEC says Goldman misled investors about Paulson’s role in the CDO in question, called ABACUS-AC1-2007. The regulator alleges that Paulson played a role in the selection of the mortgage-backed securities that went into the deal, paying Goldman $15 million to structure and market it. The SEC also accuses Goldman of failing to tell investors that the hedge fund was shorting the CDO through credit default swaps it bought from the bank.

Paulson has not been accused of any wrongdoing, and Goldman has denied any wrongdoing on its part. But the bank is reportedly in preliminary talks with the SEC about a settlement, which could see the bank acknowledge negligence or poor process, as well as pay up to $5 billion.

Goldman is also facing a half-dozen shareholder lawsuits, accusing the firm of failing to inform them of the Wells notice it received in the Paulson case last summer. A Wells notice indicates that the SEC plans to bring an enforcement action against a firm.


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