Former Goldman Employee Testimony May Weaken Govt. Case
Paolo Pellegrini, a former Paulson executive who worked on the Abacus deal, has come forward with information contradicting the government’s contention that Goldman misled investors by marketing complex synthetic financial securities to them that were tied to subprime mortgages chosen by John Paulson and which Paulson later bet against. According to the LA Times, Pellegrini reportedly told the government under oath that he advised ACA Management, the firm Goldman hired to build the portfolio, that the Paulson & Co. would be shorting the bonds placed in it.
Paulson, though his reputation has been slightly tarnished in association with all of this, is not being charged and, for his part, maintains that his firm’s role in the transaction “was appropriate and conducted in good faith. We have always been forthright in expressing our opinions, and we have never misrepresented our position.”
If Pellegrini is telling the truth, this takes a little wind out of the government’s sails.
According to the LA Times, the government complaint alleges that Goldman led ACA to believe that Paulson was going to bet long on the CDOs he was creating. “Had ACA been aware that Paulson was taking a short position … ACA would have been reluctant to allow Paulson to occupy an influential role in the selection of the reference portfolio,” the government’s suit says. Paulson and ACA had numerous meetings during which they discussed which mortgages would go into the Abacus-2007-AC1 deal, the suit alleges. Pellegrini, however, contends that during at least one of these meetings Paulson advised ACA that he was going to take a short position in Abacus. Separate from the allegation dealing with ACA, the government’s lawsuit alleges that Goldman should have disclosed Paulson’s role to the investors in the deal. Goldman denies it was required to do that. Whether or not this will be enough evidence to find Goldman guilty of civil fraud remains to be seen.
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