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Goldman Sachs, Paulson Settle Fraud 2011 Lawsuit Over Abacus
[Photo: Hans / Pixabay]
Goldman Sachs has settled a 2011 lawsuit that claimed it fraudulently induced a bond insurer to guarantee payments on the doomed Abacus collateralized debt obligation ahead of the financial crisis. ACA Financial Guaranty Corp. claimed Goldman and the hedge fund headed by John Paulson tricked it into insuring the CDO, which was tied to subprime mortgage securities.
In the $120 million lawsuit, ACA claimed it was deceived into believing Paulson & Co. would hold Abacus long-term. Instead, the fund helped select the assets and took a short position, betting the underlying mortgages would fail, the lawsuit said.
Abacus was featured in a 2011 report by the U.S. Senate Permanent Subcommittee on Investigations - which noted that 3 major investors together lost about $1 billion from their investments, while Paulson's hedge fund profited by about the same amount. Goldman settled with the SEC in 2010 over claims it misled investors in Abacus.
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