ACA Financial Can Add Paulson to Suit Against Goldman

Paulson & Co. can be added as a defendant in ACA Financial Guaranty Corp.’s lawsuit against Goldman Sachs Group Inc. (GS) over the collateralized debt obligation known as Abacus, a judge ruled.

ACA Financial sued Goldman Sachs in New York State Supreme Court in Manhattan in 2011, accusing the investment bank of inducing it to provide insurance for the Abacus deal. ACA this month asked for permission to amend the complaint to add Paulson, saying that the hedge fund and Goldman Sachs conspired together to convince ACA to insure the investment.

Justice Barbara Kapnick granted ACA’s motion to amend the complaint during a hearing yesterday in Manhattan. Goldman Sachs had asked Kapnick to extend its time to respond to the motion until it had a chance to review thousands of audio recordings from ACA’s trading desk.

“It was a simple motion and she was correct to grant it,” Marc Kasowitz, an attorney with Kasowitz Benson Torres & Friedman LLP who is representing ACA Financial, said in an interview after yesterday’s hearing.

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.

‘Without Merit’

“We firmly believe that the amendment by ACA to include Paulson as a defendant is completely without merit,” Armel Leslie, a spokesman for Paulson, said in an e-mail. “As the SEC said back in 2010, Paulson was not the subject of the SEC’s Abacus investigation, made no misrepresentations, and was not the subject of any charges. As there is no basis in law or fact for the amendment, Paulson will defend itself against this baseless action.”

Richard Klapper, an attorney with Sullivan & Cromwell LLP who is representing Goldman Sachs, declined to comment on Kapnick’s ruling.

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).

To contact the reporters on this story: Chris Dolmetsch in New York state Supreme Court in Manhattan at cdolmetsch@bloomberg.net; David McLaughlin in New York at dmclaughlin9@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; John Pickering at jpickering@bloomberg.net

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