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Goldman Sachs, Paulson settle fraud lawsuit over Abacus
November 3, 2016 / 11:13 PM / a year ago

Goldman Sachs, Paulson settle fraud lawsuit over Abacus

NEW YORK (Reuters) - Goldman Sachs Group Inc (GS.N) has settled a 2011 lawsuit claiming the investment bank fraudulently induced a bond insurer to guarantee payments on the doomed Abacus collateralized debt obligation ahead of the financial crisis.

A screen displays the ticker symbol and information for Goldman Sachs on the floor of the New York Stock Exchange (NYSE) February 9, 2016. REUTERS/Brendan McDermid/File Photo

ACA Financial Guaranty Corp claimed Goldman and the hedge fund headed by John Paulson tricked it into insuring the CDO, which was tied to subprime mortgage securities.

A filing in New York state court on Wednesday discontinued the case with prejudice against Goldman and Paulson & Co. The terms of the settlement were not made public.

In the $120 million lawsuit, ACA claimed it was deceived into believing Paulson & Co would hold Abacus long-term. Instead, the fund helped select the assets and took a short position, betting the underlying mortgages would fail, the lawsuit said.

The insurer claimed Abacus was designed so that Paulson could reap “huge profits” and Goldman “huge fees.”

Michael DuVally, a spokesman for Goldman, declined to comment. A spokesman for Paulson & Co had no immediate comment. ACA Financial did not return a call seeking comment

Goldman Sachs settled with the U.S. Securities and Exchange Commission in 2010 over claims it misled investors in Abacus, without admitting wrongdoing.

Abacus was featured in a 2011 report by the U.S. Senate Permanent Subcommittee on Investigations. The report noted that three major investors together lost about $1 billion from their investments, while Paulson’s hedge fund profited by about the same amount.

The case is ACA Financial Guaranty Corp v Goldman Sachs & Co, 650027/2011, New York state Supreme Court (New York County).

Reporting By Karen Freifeld; Editing by Andrew Hay

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