NEW YORK (Reuters) - She has yet to be mentioned by regulators, but one Goldman Sachs Group ex-employee could shed light on a mortgage-linked security at the center of the accusation that the firm defrauded investors.
Gail Kreitman, the former Goldman bond saleswoman, is not named as a defendant in the Securities and Exchange Commission’s lawsuit against Goldman and another of the investment firm’s bond salesmen, Fabrice Tourre. Kreitman is not even identified by name in the complaint.
But Kreitman, who left Goldman in June 2009, was interviewed by securities regulators during the course of their 18-month investigation, and some of her email communications are cited by the SEC in the 22-page complaint.
The SEC points to some of Kreitman’s emails as part of its claim that Goldman and Tourre misled ACA Capital Management, the outside manager tapped to oversee the transaction, about hedge fund giant Paulson & Co’s economic interest in the deal.
The SEC claims Goldman and Tourre failed to tell institutional investors that the hedge fund founded by John Paulson had an economic incentive in seeing the mortgage-linked security perform poorly. Regulators also claim investors were left in the dark about the role some of Paulson’s representatives played in helping to put the deal together.
Kreitman is not identified by name in the emails cited in the complaint. The SEC refers to her simply as a “GS&Co. sales representative.”
But in a lengthy legal filing submitted to the SEC last September, lawyers for Goldman Sachs try to explain away the emails between Kreitman and ACA executive Laura Schwartz. Goldman’s attorneys contend that Kreitman did not intend to give ACA officials the impression that the hedge fund was either an equity investor or “long” on the deal.
“The fact that Ms. Kreitman did not correct Ms. Schwartz’s statements that Paulson was an equity investor does not indicate that she attempted to conceal the truth from ACA,” said lawyers from the New York firm Sullivan & Cromwell, Goldman’s outside counsel.
Goldman’s outside lawyers in the filing downplayed Kreitman’s role in engineering the so-called synthetic collateralized debt obligation called Abacus 2007-AC1. The lawyers said Kreitman was merely an “intermediary” whose main job was to “manage the relationship for ACA.”
The Goldman lawyers even suggest Kreitman, who previously worked at Lehman Brothers and Merrill Lynch before coming to Goldman in 2006, may not have “understood the significance of Ms. Schwartz’s statements suggesting she believed Paulson to be an equity investor.”
Kreitman, a 1991 graduate of the Wharton School of Business, could not be reached for comment. She did not return several calls over the past two days and no one answered the door Tuesday morning at her suburban New Jersey home.
A Goldman Sachs spokesman declined to comment on Kreitman and the reason for her June departure from the firm, which occurred about two months before the SEC notified Goldman it was likely to be charged with civil wrongdoing.
Of the five Goldman employees interviewed by SEC investigators, Kreitman is the only to have left the firm.
The SEC contends that by misleading ACA into believing the Paulson fund was going long on the Abacaus deal, Goldman gave ACA greater comfort in using some of Paulson’s recommendations about which mortgage-backed securities should be included in the transaction’s underlying portfolio.
Regulators say that representatives from Paulson recommended putting dozens of mortgage-backed securities that were quicker to default into the portfolio. Paulson wanted weaker mortgage-backed securities included in the deal because it planned to bet against, or short, the transaction.
The SEC has not charged Paulson with any wrongdoing in the case. And SEC officials, in announcing the lawsuit, said they found no evidence of wrongdoing by anyone at the hedge fund.
The fund never told anyone at ACA it was an equity investor in the deal, said a source close to the hedge fund who declined to be identified because the person could not publicly discuss pending litigation.
Kreitman has not updated her broker registration form since leaving Goldman, which is listed as her last place of employment.
Reporting by Matthew Goldstein. Editing by Robert MacMillan