To cut a long story short, this is what SEC claims:
Goldman Sachs sold a financial product ABACUS 2007-AC1 to investors without making adequate disclosures and this amounts to fraud in SEC's opinion.
What was ABACUS 2007-AC1?
It was a "Synthetic Collateralized Debt Obligation" or "Synthetic CDO".
You can read more about "
Synthetic Collateralized Debt Obligation" here.
What was the role of the various parties?
1. Goldman Sachs was acting as a broker for this product.
2. ABN AMRO, IKB (a bank) etc were on the buy side.
3. ACA Management was supposed to be a neutral consultant, responsible for selecting the underlying securities in the CDO.
4. John Paulson's "Paulson & Company" was influencing the selection of securities for CDO.
What are SEC's accusations?
According to SEC:
- ACA Management was made to believe that Paulson & Company had interest in going long on the CDO and thus ACA allowed Paulson to influence the selection of securities.
- The buyers of the CDO were not aware of Paulson's role in the process of selection of securities.
Quote:
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Regulators say Tourre and Goldman also failed to tell investors that Paulson and Company stood to benefit from the poor performance of the CDOs because the fund was betting on a decline in the value of the complex security.
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Source.
SEC Accuses Goldman Sachs of Fraud
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