Goldman Sachs has been indicted for their role in the “Abacus” multi-billion dollar Collateralized Debt Obligation (CDO), secured by real estate mortgages.
According to the complaint, “[u]ndisclosed in the marketing materials and unbeknownst to investors, a large hedge fund, Paulson & Co. Inc. (“Paulson”), with economic interests directly adverse to investors in the [Abacus] CDO, played a significant role in the portfolio selection process. After participating in the selection of the reference portfolio, Paulson effectively shorted the RMBS portfolio it helped select by entering into credit default swaps (“CDS”) with GS&Co to buy protection on [the default of Abacus].”
When the portfolio crumbled Paulson made over $1B on the CDS it had purchased.
Click here for a copy of the SEC Complaint.