Basically, this is a filing against the collusive agreement between Goldman Sachs and Paulson
In January 2007, Paulson meets with Goldman Sachs vice president Fabrice Tourre, and asks for help betting against these bonds through the use of credit default swaps -- essentially, Paulson is asking to buy insurance on the weakest subprime-mortgage bonds.
In layman terms, Paulson will pick a bunch of securities that is extremely precarious and then he requests for help from Goldman Sachs to place insurance upon them to create a facade that they are indeed buyable and definitely not going on default for sure. Bonds with insurance shows that they are safe to a certain extent and with Goldman Sachs' backup, it will buy the consumers' confidence.
Of course, if the consumers knew that Paulson hand-picked those securities, they will not buy into it either because they all knew that it's a ruse of his. So, he chose ACA management as his scapegoat. To the public, ACA management is the one that chose those securities and Goldman Sachs as the insurance agent.
He painted an almost ostensible front to conveal the bones and skulls behind the securities.
In trying to sell the new ABACUS portfolio to investors, Goldman Sachs uses false and misleading marketing materials, according to the SEC.
The materials, created by Tourre, boldly claim ACA as the "portfolio selection agent," but make no mention of Paulson's role in selecting the bonds. As you all might have already guessed, Paulson picked those securities that are extremely risky and complex.
Beginning in 2002, IKB Deutsche Industriebank AG, a commercial bank in Germany, had been involved in the purchase of assets backed by U.S. mid-and-subprime mortgages.
But in late 2006, IKB informed Goldman Sachs and Tourre that it was no longer comfortable investing in mortgage bonds that were not selected by an independent third-party with knowledge of the U.S. housing market.
In February, March and April 2007, Goldman Sachs sends IKB copies of the ABACUS marketing materials, all of which represented that the portfolio had been selected by ACA, and failed to mention Paulson.
The SEC charges Goldman Sachs with fraud for failing to disclose Paulson's conflicting interest and role in selecting the ABACUS portfolio. The civil suit asks for a jury trial, and for Goldman Sachs to be fined and forced to repay illegally-obtained profits.
In conclusion, the point is that Paulson is not supposed to pick those securities because he can be very biased in the selection process and on top of that, he is trying to undermine the precarious nature of these securities by colluding with Goldman Sachs to create a facade for those risky securities he picked.
In turn, this case is synonymous to the fact that a trader is desperately trying to get rid of something that is extremely challenging to sell, by making it seems like it's one of the safest investment to make with all the superpowers' assurance behind it.
Credits -cnn, -foreclosure, -seeker401
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