Paulson does not appear as a defendant in the SEC’s lawsuit, which hones in on whether Goldman Sachs (GS, Fortune 500) disclosed conflicts of interest. But if the allegations in the suit are true, then Paulson had inside, perhaps non-public, and very material knowledge about a security that made him money — and lost Goldman clients $1 billion.
“Paulson’s fund is a private entity and his records are not public, which is probably why you haven’t seen charges brought against him,” says Keith Springer, president of Capital Financial Advisory Services. “The government may still be gathering information, but I can’t imagine them not going after him.”
In light of today’s SEC’s allegations, it seems inevitable that questions will arise regarding whether Paulson was manipulating the subprime market for his hedge fund’s gain, and what lengths he went to in order to make sure his big bet against the American economy came up a winner.
http://money.cnn.com/2010/04/16/news/companies/SEC_goldman_paulson.fortune/index.htm
To be precise, the SEC lawsuit against GS is for "fraudulent misrepresention" in the marketing of the nature and potential liabilities or problems with Abacus 2007 AC-1 $1B CDO. Paulson was not and could not be charged because he was not marketing and "misrepresenting" AC-1 CDO.
As a matter of fact, John Paulson - who was one of the pioneer of using Credit Default Swaps "insurance" instruments for synthetic shorting of other financial instruments (like CDOs, MBSs, SIVs) and financial firms that bought them - was buying cheap puts in the form of CDSs on these CDOs and paid GS $15M for structuring and marketing Abacus 2007 AC-1 CDO.
From SEC: "Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio while telling other investors that the securities were selected by an independent, objective third party."
The SEC lawsuit itself, though, is very iffy. This particular Goldman's CDO was a private placement, not registered offering, so the buyers were all pretty sophisticated institutional investors and funds, not naïve retail investors.
"This case didn't come as a surprise to Goldman. Presumably, Goldman believes that its defense is strong or they would have settled with the SEC," wrote Brad Hintz, brokerage analyst at Sanford C. Bernstein, in a client note Friday.
The real reason Goldman Sachs was hit with this SEC nuisance / publicity lawsuit is that Obama and Dems in the Senate are hoping to use the Republicans' and conservatives' intense dislike of Goldman Sachs and get them on board to push through [tougher] Finance Reform bill.
Of course, just like ObamaCare doesn't even attempt to deal with and contain rising medical costs, Obama's Finance Reform has nothing to do and doesn't deal with the sources of real estate bust and consequent financial crisis - insane Community Reinvestment Act (CRA) laws and de facto mortgage market regulators, government-owned Fannie, Freddie and FHA, which between them now own or control 9 out of 10 mortgages in U.S.
SEC lawsuit is just a red herring to make Financial reform possible or "tougher" than it othwerwise may be.