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According to the Collins English Dictionary 10th Edition fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage".[1] In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain
*As defined in Wikipedia

Wednesday, April 3, 2013

More on Lawsuits Against Goldman Sachs and John Paulson

John Paulson was added to the ACA Financial lawsuit brought against Goldman Sachs in 2011.  He is seeking to have the complaint removed.

From page 567 of the Levin/Coburn Report on Wall Street and the Financial Crisis:  Anatomy of a Financial Collapse, April 13, 2011  Paulson's role is partially described as follows:
    Goldman characterized Paulson's participaton in the asset selection process as one in which the hedge fund merely "express[ed] [its] views" about the reference portfolio, which often happens in synthetic CDO transactions.  The evidence indicates, however, that Paulson did more than express its views: it played an active and determinative role in the asset selection process.  Paulson established the criteria used to identify the initial list of RMBS securities, proposed a majority of the reference assets in the final portfolio, and approved 100% of the reference assets.  Moreover, the "views" expressed by Paulson directly conflicted with the interests of the investors to whom Goldman was marketing the Abacus 2007-AC1 deal.  Mr. Pellegrini was quite clear about Paulson's intentions in a deposition with the SEC:
Question:  your portfolio analysis was designed in large part to identify bonds that weren't going to perform, right?

Answer:  Right.

Question:  Because you wanted to short those bonds?

Answer:  Right

    Goldman documents reviewed by the Subcommittee contain conflicting information on esxactly who was involved in the asset selection process.  Goldman's Mortgage Capital Committee Memorandum on the Abacus CDO, the key internal Goldman document describing the new CDO, stated:  "The Reference portfolio has been selected and mutaully agreed upon by the ACA and Goldman."   In an email to a colleague, however, Mr. Tourre wrote that the portfolio had been selected by "ACA/Paulson."  The Abacus Marketing book identified ACA as the porfolio selection agent for the CDO, and stated that the portfolio selection agent had selected the reference assets.  The Abacus Offering Memorandum stated:  "The Initial Reference Portfolio will be selected by ACA Management, L.L.C."
You can read more about how Paulson contributed to the financial crisis from pages 560 onwards in the report.

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Paulson Applies for Lawsuit Dismissal--Analyst Blog

Paulson & Co applied for dismissal of a lawsuit made by ACA Financial Guaranty related to Abacus - a collateralized debt obligation (CDO). The plaintiffs accused the company of joining banking major The Goldman Sachs Group, Inc. ( GS ) to obtain guaranteed payments from bond insurers on risky investments.

In 2011, ACA Financial filed a $120 million lawsuit against Goldman and later in January, added Paulson & Co along with its hedge fund unit - Paulson Credit Opportunities Master II Ltd as the accused. The modified lawsuit claimed that Goldman and Paulson tricked ACA Financial into believing that Paulson was investing in the CDO. However, Paulson had taken a short position on it.

Read the full article here


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