Legal News

On Goldman/SEC: What Did ACA Know?; Blankfein Hits Back; More

By Ashby Jones

Tired of the Goldman/SEC case yet?

Good, because neither are we.

Thursday’s roundup:

When Paolo Met Laura. Much, though not all, of the SEC’s case against Goldman turns on this allegation: that ACA, the asset manager on the deal, was duped by Goldman into thinking that the Paulson hedge fund, which helped structure the Abacus security, was taking a long position on Abacus.

But was ACA really in the dark? According to people familiar with the situation, Paolo Pellegrini, a former Paulson executive, told SEC investigators he had told Laura Schwartz, the head of ACA’s asset management business, that Paulson was planning to bet against Abacus.

Granted, we’re a long way from knowing what really happened here, but if this is borne out, it could be a significant blow to the SEC’s case. Click here for the WSJ story. (Of course, the SEC could still show that Goldman acted negligently and fraudulently without testimony from ACA employees. No evidence has yet emerged, for instance, that IKB, the other alleged victim, knew anything about Paulson’s short position.)

The Drama Moves to Washington. On Tuesday, all eyes interested in the matter will be on Capitol Hill. Fabrice Tourre, the Goldman trader who set up the Abacus deal, and at least three of the bank's top executives, including chief executive Lloyd Blankfein (pictured), will testify before Permanent Subcommittee on Investigations to defend the firm's business activities and reputation. Click here for the NYT article.

Blankfein Fights Back. In the meantime, Blankfein’s letting clients know how he really feels about the SEC’s case. According to this story by the FT’s Henny Sender, Blankfein is leaving clients with the sense that he’s eager to fight the charges in court.

"He was very aggressive," said one person called by Blankfein on Wednesday, according to Sender. "He feels that the government is out to kill them, that they are under attack and the whole thing is totally political."

Ripples on the West Coast? California gubernatorial candidate Meg Whitman, a former Goldman director, could get hit by the fallout of the Goldman situation, according to the SF Chron. Already, the Democrats are taking their shots.

Said Democratic strategist Sean Clegg, to the SF Chron: “Meg Whitman and her cronies at Goldman Sachs let loose the four horsemen of California’s economic apocalypse - derivatives trading, mortgage-backed securities, greedy executive pay and insider stock deals. Whitman should be running for cover, not for public office.”

Full post as published by Law Blog - WSJ.com on April 22, 2010 (boomark / email).