Wednesday, April 21, 2010

Testimony Could Undercut SEC Charge Against Goldman

The government has testimony from a Paulson & Co. official that could contradict its own claims against Goldman Sachs, CNBC has learned.

Paolo Pellegrini, a former key research associaite of Paulson's, told the government that he informed ACA Management that Paulson intended to bet against, or short, a portfolio of mortgages ACA was assembling.

If true, the testimony would go directly against government claims that ACA did not know Paulson was hoping the collateralized debt obligations would fail, and subvert charges that Goldman breached its duty by not informing ACA of Paulson's position.

CNBC has examined documents in which a government official asked Pellegrini whether he informed ACA CDO manager Laura Schwartz about Paulson's position.

"Did you tell her that you were interested in taking a short position in Abacus?" a government official asked Pellegrini, referring to the name of the CDO portfolio.

"Yes, that was the purpose of the meeting," Pellegrini responded.


  1. I realize I may be overanalyzing this by two levels, but is it possible that the Obama administration is purposely "going after" Goldman with a ridiculous charge, so that the case will get thrown out but at least Obama can say he tried? I.e. the average person isn't going to say, "Well that was a stupid charge they leveled," instead he will say, "Man Goldman is connected! Even Obama couldn't stop them! The feds need more power to rein in these fat cats!"

  2. Murphy - you are not overanalyzing this imho. This is exactly what politicians do, and if Obama is anything, he definitely a politician. In fact that is all he is.

  3. If this was anything other than a show trial and an attempt to implement after-the-fact regulation that is meaningless, then Goldman would simply be charged with insurance fraud, along with Paulson, Magnetar, and the list goes on...

  4. @Matthew
    Buying CDS without the underlying is fraud as it stands, whether Paulson told ACA or not. But in any case, he's only claiming to have told them he was short the CDO, ie he had bought CDS on it, when the material fact he should have told them is that he wasn't long.

  5. No. It's a ploy to aid the passage of the financial reform bill. If the government had a real case they would have filed criminal charges.

  6. @econophile.
    I agree it's a ploy to pass financial reform.
    But they DO have a case. They just chose a very narrow one and kept it civil because this is political theater and they don't want too much blood in the water or a flood of copycat lawsuits might end up bringing the rest of the banks down...after all,they weren't doing anything much better than GS