John Paulson Case Summary

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John Paulson approached Goldman to fabricated a synthetic CDO, “dubbed ABACUS 2007 -AC1, in exchange for a $15 million fee” () . Goldman approached ACA Management to become the manager for the securities and worked together with Paulson on the portfolio. Goldman sold ABACUS to the IKB Deutsche Industrie Bank. Goldman violated Standard I (C) misrepresentation for the fact that Goldman did not informed both the ACA and IKB that Paulson was shorting the securities. Goldman Sach did not disclosed to IKB bank of the involvement of Paulson in the ABACUS case. In this case, Sach violated standard IV (A) disclosure of conflict by serving two clients at the same time Paulson and IKB bank. This will cause Goldman to not give each investor fait treatment. Goldman was in favored of Paulson by following his instruction and not fulfilling the fiduciary duty for IKB causing Goldman Sach to violated standard III (A) loyalty, prudence, and care. …show more content…

“Investors in the ABACUS 2007-AC1 CDO lost over $1 billion. Paulson & Co. opposite CDS positions yielded a profit of approximately $1 billion for Paulson.” (Securities and Exchange Commission v. Goldman Sachs & Co. and Fabrice Tourre, 2010). Goldman Sachs line of defense: “Goldman Sachs, itself, lost more than $90 million. Our fee was $15 million. We were subject to losses and we did not structure a portfolio that was designed to lose money.” (Destin, 2010, p. 1). However, these defenses were irrelevant and in 2010, “Goldman Sachs had agreed to pay $550 million to settle federal claims that it misled investors in a subprime mortgage product.” (Chan & Story, 2010, para.

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