One of the key components of the SEC’s case against Goldman Sachs is whether ACA, the independent bond insurer the firm hired to select securities for the collateralized debt obligation known as Abacus, knew that Paulson was planning to take a short position in the deal. ACA, which went bankrupt in 2007 after writing $68 billion in insurance on crappy mortage bonds, claims they didn’t know, a charge the government reiterates in its floridly worded complaint against Goldman Sachs. “Unbeknownst to ACA at the time,” it reads, “Paulson intended to effectively short the RMBS portfolio it helped select.”
But this morning, CNBC’s Steve Liesman unearthed a transcript from a deposition the government took from Paulson deputy Paolo Pelligrini, in which the noted jazz lover pooh-poohs the idea that ACA was left in the dark.
If ACA CDO manager Laura Schwartz didn’t know they were planning to take a short position in Abacus, he said, then she was just dim.
“Did you tell her that you were interested in taking a short position in Abacus?” a government official asked Pellegrini, referring to the name of the CDO portfolio.
Later in the deposition, Pellegrini he doesn’t recall specifically telling her, but noted that he had walked her through the methodology Paulson and Co. had used to select the subprime securities they chose, he said, and made it clear that what they were looking for low FICO scores and high loan-to-value ratios. It would “have been a little difficult to sort of miss the fact that we were trying to short this stuff,” he said. Asked why this rather important information, which basically undercuts the government’s case, was missing and in fact directly contradicted in the complaint, a spokesman for the SEC said merely, “We look forward to presenting a complete and accurate evidentiary record in court.”