Paulson: We Didn’t Pick RMBS in Goldman Abacus Trades

In response to today’s allegations by the Securities & Exchange Commission that John Paulson’s hedge fund Paulson & Co. participated in what amounted to fraud regarding collateralized debt obligations on mortgage-backed securities peddled by Goldman Sachs (GS), Paulson’s outside press relations firm, Walek & Associates, responded with a brief statement, which the firm was kind enough to email to me.

Here’s the entire text of the response:

As the SEC said at its press conference, Paulson is not the subject of this complaint, made no misrepresentations and is not the subject of any charges. While Paulson purchased credit protection from Goldman Sachs on securities issued under the ABACUS ABS CDO program, we were not involved in the marketing of any ABACUS products to any third parties. ACA as collateral manager had sole authority over the selection of all collateral in the CDO, securities of which were subsequently rated AAA by both S&P and Moody’s. Paulson did not sponsor or initiate Goldman’s ABACUS program, which involved at least 20 transactions other than that described in the SEC’s complaint.

I’d note that Paulson’s assertion that ACA Management LLC, a separate firm, had “sole authority” over the selection of the residential mortgage-backed securities underlying the Abacus CDOs, while perhaps true, skirts the SEC’s assertion that “[U]ndisclosed in the marketing materials and unbeknownst to investors, the Paulson & Co. hedge fund, which was poised to benefit if the RMBS defaulted, played a significant role in selecting which RMBS should make up the portfolio.”