Streetwise Professor

April 21, 2010

Who Made an Incomplete Disclosure?

Filed under: Derivatives,Financial crisis,Politics — The Professor @ 1:35 pm

CNBC reports that a Paulson employee told the SEC that he had met with ACA, and disclosed in that meeting that Paulson was going to be the short in the synthetic CDO:

CNBC has examined documents in which a government official asked Pellegrini whether he informed ACA CDO manager Laura Schwartz about Paulson’s position in the portfolio, named Abacus 2007-AC1.

“Did you tell her that you were interested in taking a short position in Abacus?” a government official asked Pellegrini, referring to the name of the CDO portfolio.

“Yes, that was the purpose of the meeting,” Pellegrini responded.

So, apparently ACA DID say “WTF: Are you buying or selling?”  Funny how that wasn’t in the complaint, huh?  CNBC says that Pellegrini and Schwartz met three times.

If true, this would pretty much torpedo the SEC case, which depends crucially on “Paulson’s undisclosed short interest.”  Will the SEC try to argue that this is irrelevant, because Goldman didn’t disclose it to all buyers?  That would be a stretch.

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