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SEC files civil fraud suit against Goldman Sachs for selling synthetic CDO which J. Paulson was shorting
Monday, April 19, 2010

Opalesque Industry Update – A move by the U.S. Securities and Exchange Commission (SEC) to charge Goldman Sachs, the world’s most powerful investment bank, with fraud, opened a whirlwind of calls to expand investigation from across Europe amid fears of new era of litigation that could entangle Goldman and other banks for years to come. Asian stocks also stumbled today on the back of Goldman’s investigation.

On Friday, the SEC charged Goldman Sachs & Co and one of its employees, Fabrice Tourre, with securities fraud for allegedly making material misstatements and omissions in connection with a synthetic collateralized debt obligation (CDO) that GS&Co structured and marketed to investors. This synthetic CDO, ABACUS 2007-AC1, was linked to the subprime mortgage crisis that hit the U.S. housing sector in 2007 (SEC’s report here).

SEC’s complaint The SEC's complaint said the marketing materials for ABACUS 2007-AC1 represented that the reference portfolio of RMBS underlying the CDO was selected by ACA Management LLC, a third party with expertise in analyzing credit risk in RMBS. Undisclosed in the marketing materials and unbeknownst to investors, a large hedge fund, Paulson & Co. Inc., with economic interests directly adverse to investors in the ABACUS 2007-AC1 CDO played a significant role in the portfolio selection process.

After participating in the selection of ......................

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