John Paulson, billionaire investor and manager of hedge fund Paulson & Co, will testify in the civil fraud case filed by the United States Securities and Exchange Commission (SEC) against Fabrice Tourre, a former executive of Goldman Sachs Group Inc (NYSE:GS), according to report from Bloomberg based on a statement by the defense lawyer.
Last Friday, Sean Coffey, the legal counsel of Tourre informed District Judge Katherine Forrest of the Manhattan Federal Court that the defense would call Paulson as a witness in the trial. The judge said Paulson would probably take the stand on August 1.
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Tourre Might Take The Stand This Week
On the other hand, SEC lawyer Matthew Martens said Tourre might take the stand this week. He expects to question the former Goldman Sachs executive during a trial on Wednesday.
Pauolo Pellegrini, a former managing director of Paulson & Co already testified in the case. During the trial, Pellegrini said that ACA Capital Holdings, a key participant in the Abacus investment, that the hedge fund plans to bet against the deal.
Pellegrini said, “As I told all collateral selection agents, we were interested in shorting a CDO, shorting subprime securities in a CDO.” Goldman Sachs Group Inc (NYSE:GS) hired ACA Capital Holdings to pick the mortgage securities behind the Abacus deal, which is part of a broad short investment of Paulson in the U.S. housing market in 2007.
The SEC alleged that Tourre misled investors in the Abacus 2007-AC1 deal, a subprime mortgage transaction shorted by Paulson’s hedge fund. The commission said Tourre misled investors by failing to reveal to them that the hedge fund actually helped select the securities and its plan to bet against the transaction. According to the SEC, Tourre told investors that the hedge fund is investing in Abacus, which suggests that it is expecting the price of the stock to increase.
Touree denied the allegations and his lawyers would try to prove in court that ACA Capital Holdings knew about Paulson’s intention to bet against the Abacus-AC1 deal, and it was widely reported.
Paulson Earned Billions While Investors Lost Billions
Paulson & Co earned billions of dollars from betting against the Abacus 2007-Ac1 deal, but investors on the other side of the transaction lost more than $1 billion from their investments.
In 2010, Goldman Sachs Group Inc (NYSE:GS) faced a lawsuit regarding the deal. The bank agreed to settle the case and paid a penalty of $550 million. The SEC did not sue Paulson and his hedge fund, and the clients of the Goldman Sachs.