Supposedly “key facts related to subprime securities” were omitted and investors in the CDO lost $1 billion (whereas Paulson & Co, which apparently had a “hand in structuring the CDO in question,” made a billion). Dick Bové has no problem with this, and doesn’t think Goldman will either, which Mark Haines cannot believe.
More from the Times:
The suit also named Fabrice Tourre, a 31 year-old vice president at Goldman who helped create and sell the investment. The instrument in the S.E.C. case, called Abacus 2007-AC1, was one of 25 deals that Goldman created so the bank and select clients could bet against the housing market. Those deals, which were the subject of an article in The New York Times in December, initially protected Goldman from losses when the mortgage market disintegrated and later yielded profits for the bank.
As the Abacus deals plunged in value, Goldman and certain hedge funds made money on their negative bets, while the Goldman clients who bought the $10.9 billion in investments lost billions of dollars.
According to the complaint, Goldman created Abacus 2007-AC1 in February 2007, at the request of John A. Paulson. Goldman let Mr. Paulson select mortgage bonds that he wanted to bet against — the ones he believed were most likely to lose value — and packaged those bonds into Abacus 2007-AC1, according to the S.E.C. complaint. Goldman then sold the Abacus deal to investors like foreign banks, pension funds, insurance companies and other hedge funds. But the deck was stacked against the Abacus investors, the complaint contends, because the investment was filled with bonds chosen by Mr. Paulson as likely to default. Goldman told investors in Abacus marketing materials reviewed by The Times that the bonds would be chosen by an independent manager.
Full complaint here.