Goldman Sachs sued by CDO investor over Abacus deal

10 January 2011

ACA Financial Guaranty Corporation (ACA) has filed a law suit against Goldman Sachs claiming it was deceived into investing in a "worthless product".

The firm is seeking $90 million in punitive damages and a further $30 million in compensatory damages due to the bank’s alleged “fraudulent activities”.

ACA accused the bank of “egregerious conduct” in its marketing and sale of the ABACUS collaterized debt obligation, which the bank undertook on behalf of hedge fund Paulson & Co.

The insurer claims it was duped into taking a long position against the product and providing insurance unaware that the hedge fund took a short position.

In the filing, the firm said: “Had Paulson’s true role as a short investor selecting the portfolio been known, neither ACA nor anyone else would have taken a long position in it.

“Because of Goldman Sachs’s deceit - which led ACA to reasonably believe that ABACUS was a valuable product selected by the equity investor with identical objectives - ACA invested in what was in fact a worthless product.”

Goldman Sachs was accused of fraud by the Securities and Exchange Commission in relation to ABACUS.

The investment bank agreed to pay $550 million in damages to settle the charges in July of last year.

By Jim Ottewill

Become a bobsguide member to access the following

1. Unrestricted access to bobsguide
2. Send a proposal request
3. Insights delivered daily to your inbox
4. Career development