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July 24, 2013

Witness in Tourre Case Describes Difficulty in Knowing Deal’s Friends From Foes

A transaction named Abacus 2007-AC1 became one of the most infamous trades of the financial crisis, netting more than $1 billion for Paulson & Company, a hedge fund that successfully wagered that the housing market would crash.

According to a crucial witness who took the stand on Tuesday at the trial of a former Goldman Sachs trader, the trade would never have happened had ACA Management, a firm that helped assemble it, been told that Paulson & Company was betting the trade would fail. The witness, Laura Schwartz, was testifying at the trial of Fabrice P. Tourre, who has been accused of participating in a scheme to defraud investors in connection to the trade and who is now on trial in Manhattan.

Ms. Schwartz was a senior executive at ACA and the main contact between her firm and Goldman, where Paulson & Company was a client eager to create a new security to capitalize on the housing market.

She is one of most important — and controversial — witnesses to take the stand in this trial, which on Wednesday will enter its eighth day. The civil case was brought in 2010 by the Securities and Exchange Commission, which also sued Goldman. Goldman settled its case in 2010, paying $550 million without admitting or denying guilt. That has left Mr. Tourre as the sole employee to battle the charges that ACA was misled about Paulson & Company’s role in the transaction.”

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Read full New York Times article here

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