Big CDO Investor Sues Goldman

Jan 7 2011 | 8:53am ET

The largest investor in a controversial Goldman Sachs collateralized debt obligation has sued the firm, which the Securities and Exchange Commission accused last year of misleading it about the role of hedge fund Paulson & Co. in the CDO.

ACA Financial Guaranty said it was "misled by Goldman's fraudulent activities" and alleged that the CDO, called ABACUS-2007-AC1 was already "worthless" when Goldman marketed it to ACA. ACA bought millions of dollars worth of Abacus notes and insured part of the portfolio for $909 million.

In its own lawsuit against Goldman filed in late 2009—settled in May for $550 million—the SEC accused the Wall Street giant of hiding Paulson's role from ACA. The agency alleges that the CDO was structured and marketed on behalf of Paulson, which shorted it, earning about $1 billion in profits.

An ACA unit, ACA Management, was employed by Goldman to select the residential mortgage-backed securities to go into the CDO. Paulson, which has not been accused of wrongdoing in the case, allegedly suggested 123 RMBS, of which ACA rejected 68.

ACA is seeking $120 million in damages in its suit, filed yesterday in New York state court.


In Depth

bfinance: Fees Falling Across Asset Classes, Yet Overall Investor Costs Still Climbing

May 16 2017 | 9:53pm ET

Despite unprecedented attention on fees, new research from investment consultancy...

Lifestyle

CFA Institute To Add Computer Science To Exam Curriculum

May 24 2017 | 9:25pm ET

Starting in 2019, financial industry executives sitting for the coveted Chartered...

Guest Contributor

Risk-Based Compliance: Why Oversight Of Outsourcing Is Critical

May 10 2017 | 7:02pm ET

Compliance is notoriously one of the trickiest middle office functions for funds...

 

From the current issue of