Paulson & Co., the New York hedge fund, was named as a defendant in a proposed revised lawsuit by ACA Financial Guaranty Corp. (MANF) against Goldman Sachs Group Inc. (GS) over a collateralized debt obligation called Abacus.
Paulson and Goldman Sachs conspired to induce ACA to provide financial guaranty insurance for the Abacus deal, which was “doomed to fail,” the firm said in papers filed yesterday in New York State Supreme Court in Manhattan. ACA, which sued Goldman Sachs in 2011, is seeking court permission to file a revised complaint adding Paulson as a defendant.
“The proposed amended complaint properly pleads that, at a bare minimum, Paulson gave Goldman Sachs substantial assistance in achieving the fraud,” ACA said.
Goldman Sachs in July 2010 won court approval of a $550 million settlement with the U.S. Securities and Exchange Commission over claims that it misled investors in the Abacus CDO. Goldman Sachs failed to disclose Paulson’s role in selecting underlying securities or that Paulson had taken a short position against the CDO, the SEC said.
Goldman Sachs and Paulson deceived ACA into believing that Paulson was a long investor in the deal and agreed to structure the transaction in a manner that concealed Paulson’s short interest, ACA said in court papers.
The request to add Paulson as a defendant “is completely without merit,” Armel Leslie, a spokesman for Paulson, said in a statement.
“As there is no basis in law or fact for the proposed amendment, Paulson will defend itself against this baseless action if the amendment is allowed,” he said.
State Supreme Court Justice Barbara Kapnick ruled in April that ACA’s fraud claims against New York-based Goldman Sachs could proceed. ACA is seeking to recover $120 million in damages, according to a court filing.
The case is ACA Financial Guaranty Corp. v. Goldman Sachs & Co., 650027-2011, New York State Supreme Court (Manhattan).