By Karen Freifeld
NEW YORK, Jan 31 (Reuters) - John Paulson's hedge fund will
have to defend claims that his firm conspired with Goldman Sachs
Group Inc to fraudulently induce a bond insurer to
guarantee payments on risky debt, court papers show.
Bond insurer ACA Financial on Thursday filed an amended
complaint naming Paulson & Co and its hedge fund Paulson Credit
Opportunities Master II Ltd as defendants in a $120 million
lawsuit it brought against Goldman in 2011.
The lawsuit centers on a collateralized debt obligation
known as Abacus, which ACA claimed was designed to fail so that
Paulson could reap "huge profits" and Goldman "huge fees."
Armel Leslie, a spokesman for Paulson, said ACA's case
against Paulson is "completely without merit."
Thursday's amended complaint contains new allegations that
Goldman and Paulson deceived ACA into believing Paulson was
investing in the CDO, when they knew he would instead bet
against it by taking a short position.
It alleges that Goldman misrepresented that Paulson's and
ACA's financial interests in Abacus were "aligned," and that
Paulson fraudulently played the role of the "equity investor."
The complaint quotes a Jan. 17, 2007, telephone conversation
in which a Goldman managing director said that Paulson's
interest in the "capital structure" of Abacus was "all, 100
Goldman and Paulson also secretly agreed in what they called
a "side letter agreement" to structure the deal in a way that
concealed Paulson's short interest, the new complaint said.
Michael DuVally, a spokesman for Goldman, declined to
comment on the amended complaint.
Goldman Sachs settled with the U.S. Securities and Exchange
Commission in 2010 over claims it misled investors in Abacus,
without admitting wrongdoing.
The SEC claimed Goldman and vice president Fabrice Tourre
failed to tell investors Paulson & Co helped choose and bet
against the subprime residential mortgage backed securities
Leslie, Paulson's spokesman, on Thursday noted the SEC
"As the SEC said back in 2010, Paulson was not the subject
of the SEC's ABACUS investigation, made no misrepresentations,
and was not the subject of any charges," Leslie said in an
The case is ACA Financial Guaranty Corp v Goldman Sachs &
Co, 650027/2011, New York state Supreme Court (New York County).
For ACA: Marc E. Kasowitz, Kasowitz, Benson, Torres &
For Goldman: Richard Klapper, Sullivan & Cromwell
For Paulson: Unclear
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