Leaked Goldman Presentation on Abacus Trade

We received a copy of the document via e-mail and assume this is being leaked broadly (which begs the question of whether this was by happenstance or deliberate. The proximity to the filing of the suit suggests the latter).

Richard Smith published it on ScribD:


Update 8:15 PM: Several items jump out.

First is the unseemly number of pages devoted to touting ACA’s expertise and deliberate screening process, namely pages 20 to 48 and 57 through 63. ACA presumably provided all the material in this section, which is misleading, but since it was for the most part not incorporated in the offering documents, ACA would appear not to be liable (plus Goldman is still on the hook, since it was making representations re ACA’s process and procedures). The amount of information provided gives further support to the idea that the caliber and independence of the collateral manager was an important consideration for prospective investors in the deal.

Second is the long list of contacts on page 65, including Jonathan Egol (who spearheaded the Abacus program) and Testuya Ishikawa (who has left the industry and wrote the book How I Caused the Credit Crunch). As many have remarked, the singling out of Tourre seems odd.

Update 9:00 PM: Goldman released a short statement today on the pending suit and has provided a longer statement in its defense. Its basic arguments are:

1. Goldman lost money on the deal. Hhm, is that because the losses were larger than the guarantee provided by ACA on the super senior tranche? (The statement “ACA was the biggest investor” presumably translates into “ACA insured the super senior tranche” but to the extent the insurance failed, Goldman would be exposed). That would be a failure of risk management (as in GS expected the deal to fail, but its hedge was insufficient).

2. Goldman made adequate disclosure. We’ll see how that contention holds up as more information comes out.

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  1. decora

    pg 22

    ACA – Business Strategy

    ‘municipal finance – only “A” (S&P) rated financial guarantor in business’


    Weren’t the others all AAA? im confused how being rated lower than your competition is a ‘plus’.

    1. jimmy james

      Single A means the protection comes cheaper, which could be a plus in a low margin environment

  2. dd

    Need the offering memo but the risk factors on page 9 disclose that Goldman “may” be in possession of material nonpublic information that it does not intend to disclose.
    What a hoot; it’s reminds me of the old blind pools. Of course before deregulation blind pools were per se fraud; but “innovation” happens.

  3. kensey

    Does anyone think Paulson did anything morally questionable in all this? I realize he has not been named in the suit, and most of what I read has been exculpatory. However, he has been pitched (even in the New Yorker of all places) as being some kind of sage “genius” investor guru who wisely made bets against “subprime” and won. But, if this is how he did it, via collusion with GS in constructing a CDO to foist on investors who were depending on the integrity of GS, well that suggests that Paulson is over hyped at best and just plain sleazy at worst.

    1. Eric O'Neill

      Well, as much as he was probably wrong in doing what he did, he was playing by the rules. Goldman let him take advantage of their clients, and the big question is whether they did so knowingly or how much they actually disclosed.

  4. dd

    In another era, before deregulation, Paulson is easily characterized as the defacto issuer. It proposes the offering, pays the fees, participates in the structure and ultimately via CDS pass-through receives the proceeds via investor loss payments under the terms of the securities offering (at least from the term sheet..need offering doc). The SEC is not up to that theory and instead went the simple route.
    Will a jury buy that the $ 1 billion recipient has no disclosure responsibilities while the $15 million underwriter cum presumed creator of the nominal issuer (Cayman LLC) bears all the burden? It will be an interesting trial.

  5. rootless_e

    I’m struck by the sheer irresponsibility of the IBK investor in this GS nonsense. IBK knew that the other side of the investment was financed by someone with a lot of money who thought there was a good chance that those already BBB rated mortgages would go bad. They also know that GS and the managers were being paid to make the deal. What were the IBK managers and analysts being paid to do – just toss depositor money up in the air and see what the wind would do with it?

    1. jake chase

      What were IBK managers and analysts being paid to do? To verify the ratings and chase yield.

      In the world of other people’s money, this is called Investment Management.

      Question: how many IBK people actually read the prospectus before buying the deal? My guess is zero.

  6. MJP

    Hey Yves,

    Did you notice the first ACA risk manager listed Tzani, the PH.D physicist, worked at Moodys before ACA and… drum roll….got a job at the New York Fed afterwards. I suppose the NYFed is the now the reward for that type of analysis at ACA.

  7. MJP

    To be clear, I’m discussing page 30 of the prospectus above. Thanks for all your excellent work Yves.

  8. MJP

    Wait. Didn’t Alan Greenspan of the Fed go work for John Paulson after he left the Fed, during the time Paulson made these trades? I heard that Greenspan picked only one hedge fund he would consult, that being Paulsons. If that’s true, I don’t like the idea of that or a guy coming from the risk management wreckage of ACA to get a job at the Fed. It just seems unusual to me. Anyone else?

  9. Doc Holiday

    “The documents include the offering circulars for 40 of Goldman’s estimated 148 deals in the Cayman Islands over a seven-year period, including a dozen of its more exotic transactions” …. including this here retarded deal that took other retarded investing folks by surprize!

    Who could have guessed that some bogus mafia-like LLC corporation that was designed to dodge taxes and use leverage could have turned out to be such a shitty deal for some really stupid people?

    This Cayman crap used to piss me off, because a corporation like Goldman can start a subsidiary at breakfast and then transfer ownership by lunch and then vanish into thin air before midnight — and meanwhile, our IRS, FTC, SEC, Treasury, DOJ, FBI, Congress…. all sit around and watch the game of collusion ….. bottom line: Goldman will be fined $5,000 and deny any wrongdoing — as the reverse engineer this time bomb and redesign the next warhead to look like something some dumbass 58 year old teacher will fall for, as she shoves her pension money into the next Goldman/Wall Street trap that will explode, because there never will be regulation or justice and I could just sit here and go on but it’s pointless, because the mafia runs America…..

    See link: http://www.mcclatchydc.com/2009/12/30/81465/goldmans-offshore-deals-deepened.html

  10. MyLessThanPrimeBeef

    I don’t understand why a fraud suit by the SEC against Goldman should drive stocks down.

    Shouldn’t it be the other way around, with market participants celebrating the eradication of fraud?

    1. Short_GS

      Actually several counterparties to these CDO’s along with the MI’s that insured them took off on the news. Check out MBI

  11. Michele Kearney

    Its going to be interesting to see the European reaction to all of this especially those who were on the long side of the purchases. Goldman Sachs isn’t the only culprit. The SEC litigation is just the beginning and maybe only the tip of the iceberg.

  12. anonymous

    I have a few questions about this. First, the complaint says that Paulson bought protection on the actual CDO, not on the collateral in the CDO. Who then were the buyers of the protection on the reference credits that became the collateral of the CDO? Did GS itself buy the protection? If so, this should be added to the amount they profited from the deal in addition to the fees.

    Next, who sold Paulson protection on the actual CDO? It says that IKB bought the CDO tranches but says nothing about who was on the other side of the Paulson bet. Perhaps it was even another CDO that needed synthetic CDO collateral.

    Does anybody know the answers to these questions?

  13. CalDre

    It would seem relevant to me as well that page 20 of the presentation indicates there was no “portfolio advisor”, even though Paulson seems to have filled that role, from my understanding of the term (though more information is needed on Paulson’s exact role and why ACA would even consider Paulson’s list – I presume because Goldman asked and/or pressured them to, though ACA apparently claims Goldman represented to them that Paulson would also be long the underlying assets). For me, that converts the case from a material omission case, to an affirmative fraud case.

  14. Alan Calhoun

    Sirs, The bird attacking the owl in today’s photo is an eastern bluejay, not a mockingbird.

  15. Ellen Crouch

    Hold the bank accountable! take them down and get back all the money to feed the unemployment line!

  16. Dale Miller

    goldman creates a hedge fund. shorts the cdo’s to cover it’s losses. someone also shorted airline stock 9/11.

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