Ex-Paulson exec Hedge fund’s plans no secret in Tourre case
Former Goldman Sachs bond trader of misleading investors in the subprime-mortgage-linked deal
A key participant in the notorious Abacus investment knew that hedge fund Paulson & Co planned to bet against the deal, a former Paulson managing director said on Wednesday, potentially undercutting part of the case against Fabrice Tourre.
Former Goldman Sachs bond trader Tourre has been accused by the US Securities and Exchange Commission of misleading investors in the subprime-mortgage-linked deal called Abacus 2007-AC1.
In testimony Wednesday, Paolo Pellegrini, the former Paulson & Co managing director, said he made clear to ACA Capital Holdings Inc that Paulson wanted to bet against the deal.
“As I told all collateral selection agents, we were interested in shorting a CDO, shorting subprime securities in a CDO,” said Pellegrini, one of the architects of hedge fund manager John Paulson’s bet against subprime mortgages in 2006 and 2007.
A lawyer for the SEC said Pellegrini’s testimony, on the third day of Tourre’s trial, seemed to contradict depositions taken before the trial. The SEC claims Tourre deliberately misled ACA into thinking that Paulson planned to invest in Abacus rather than bet against it.
ACA was hired by Goldman to select the mortgage securities behind Abacus. According to SEC documents in the case, the securities were in reality chosen by Paulson & Co, which selected securities that it expected to fail.