The Securities and Exchange Commission accuses Goldman of deceiving investors in 2007 by allowing Paulson & Co, the hedge fund, to help design an instrument it intended to sell short. The mortgage-based collateralised debt obligation (CDO), dubbed Abacus, duly tanked when the US housing market imploded. Paulson made hundreds of millions of dollars while long-only investors lost an equal amount.
Greg Palm, Goldman’s general counsel, tried to move the spotlight onto the third party firm arranging the CDO yesterday. Palm said ACA, at the time headed by Laura Schwartz, had “full responsibility” for picking securities for the portfolio. He said he had “no idea” whether ACA knew Paulson would be shorting the CDO.