RBS Mulls Lawsuit Against Goldman Following CDO Settlement

Jul 19 2010 | 2:49pm ET

Goldman Sachs just paid $550 million to make the Securities and Exchange Commission’s investigation of one of its collateralized debt obligations to go away. But that doesn’t mean the headaches stemming from the 2007 CDO, allegedly structured and marketed for hedge fund Paulson & Co., have gone away.

The Royal Bank of Scotland—which lost more than $800 million on the CDO, called ABACUS-2007-AC1—said it would “carefully consider all of its options” following Goldman’s deal last week with the SEC. Among those options is suing the Wall Street giant for hundreds of millions more than the $100 million that it is to get from the SEC settlement.

Another bank, Germany’s IKB, recouped all of its losses from the CDO, getting $150 million in the settlement.

Goldman has already been sued over losses suffered in another CDO it structured, by collapsed Australian hedge fund Basis Capital Management.

As part of its settlement with the SEC, Goldman also agreed not to deduct its $535 million in civil penalties and restitution from its taxes. Such a move could have saved the firm more than $187.5 million.

Goldman agreed “it shall not claim, assert or apply for a tax deduction.”

The firm did not admit or deny any wrongdoing in the settlement, although it did acknowledge that the marketing materials for the CDO “contained incomplete information.” The SEC had accused Goldman of defrauding investors by not disclosing Paulson’s role in selecting the securities that went into the CDO, or that the hedge fund planned to short the CDO through credit default swaps purchased from Goldman itself.


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