ACA Financial Guaranty Corps wins Abacus case over Goldman Sachs

The Abacus case was related to the subprime mortgage crisis which was at the heart of the 2008 financial crisis. The suit claimed that Goldman Sach’s schemed to reap in huge fees by helping a hedge fund reap in huge profits.

The Goldman Sachs Group has now settled a 2011 lawsuit wherein ACA Financial Guaranty Corp had claimed that it had wrongfully and fraudulently induced a bond insurer to guarantee payments on the Abacus collateralized debt obligation before the 2008 financial crisis.

The complaint against Goldman Sachs was tied to the subprime mortgage securities crisis which was the cause of the 2008 global financial crisis.

On Wednesday, a state court in the city of New York discontinued the case with prejudice against Goldman and Paulson & Co.

The terms of the settlement were not made public.

In its $120 million lawsuit, ACA Financial Guaranty Corp had claimed that Goldman Sachs had fraudulently deceived it into believing, Paulson & Co would hold Abacus long-term. Instead, the hedge fund, which helped it select the select the assets, took a short position and bet the underlying mortgages would fail.

The lawsuit claimed that Goldman Sachs’s scheme was designed to help Paulson reap “huge profits” and Goldman “huge fees.”

A spokesman for Goldman Sachs, declined comment.

A spokesman for Paulson & Co had no immediate comments.

ACA Financial did not return a call for comments.

In 2010, Goldman Sachs had settled with the U.S. Securities and Exchange Commission over claims that it misled investors in Abacus, without admitting wrongdoing.

In 2011, a U.S. Senate Permanent Subcommittee on Investigations had discussed the Abacus issue. In its report, the committee noted that 3 major U.S. investors lost together nearly $1 billion in investments while Paulson’s hedge fund profited by roughly the same amount.

The case is ACA Financial Guaranty Corp v Goldman Sachs & Co, 650027/2011, New York state Supreme Court (New York County).


Categories: Regulations & Legal, Strategy


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