That statement, the SEC claims, persuaded ACA to lend its prestige to the deal and to make a disastrous bet that the mortgage-backed securities underlying the investment would perform well. Paulson, which helped ACA pick the securities, was secretly betting they would fail, the SEC says.
Goldman Sachs and Paulson never corrected ACA’s misimpression through e-mails, phone conversations and meetings, including a chance encounter between Schwartz and a top Paulson executive in a Jackson Hole, Wyoming, hotel bar, she said.
Schwartz testified that a Jan. 8, 2007, meeting at Paulson’s Manhattan offices was part of a “beauty pageant” to select a third-party agent to pick the residential mortgage- backed securities underlying the Goldman Sachs investment, a synthetic collateralized debt obligation called Abacus 2007-AC1.
She believed from discussions with Goldman Sachs that Paulson was acting as sponsor of Abacus and was investing in its equity, she said.
ACA’s former chief executive officer, Alan Roseman, testified July 22 that Paulson’s long position was “critical” to ACA’s participation in Abacus. The SEC claims Tourre and Paulson misled ACA, believing the firm’s presence on the transaction would lend Abacus credibility and attract investors.
Paulson hasn’t been charged with any wrongdoing in connection with the Abacus deal.
An SEC lawyer last week played a recorded Jan. 17, 2007, telephone call in which Gail Kreitman, a Goldman Sachs saleswoman, told Lucas Westreich, who worked with Schwartz, that New York-based Goldman Sachs planned to place “a hundred percent of the equity” in the transaction with Paulson.
Kreitman, who said she worked with Schwartz at Merrill Lynch before moving to Goldman Sachs, testified she can’t remember who told her Paulson intended to invest in the equity stake. She said she got most of her information on the deal from Tourre.