Executives of Investment Company Had Rejected Goldman Deal as Too Risky

[Cees Binkhorst]

REPLY TO: D66 at nic.surfnet.nl

De vaste partner van Goldman Sachs voor het samenstellen van CDO's gaf
aan de Abacus deal (waarover GS nu problemen heeft met de USA-Senaat)
NIET te willen doen, omdat deze te riskant was voor de kopers.
Dit doet de positie van GS geen goed, om het maar eens zwak uit te drukken.

Groet / Cees

SEC Questions 'Not Us' Firm
Executives of Investment Company Had Rejected Goldman Deal as Too Risky
http://online.wsj.com/

By GREGORY ZUCKERMAN
<http://online.wsj.com/search/term.html?KEYWORDS=GREGORY+ZUCKERMAN&bylinesearch=true>
And SERENA NG
<http://online.wsj.com/search/term.html?KEYWORDS=SERENA+NG&bylinesearch=true>

Xinhua/Zuma Press
Goldman Sachs CEO and Chairman Lloyd Blankfein in Washington on Tuesday
for Senate subcommittee hearing on Wall Street and the financial crisis.
The Securities and Exchange Commission in recent weeks has questioned
executives of a little-known firm that played a key role in the business
of arranging mortgage investments, as part of the agency's probe into
now-controversial deals struck at the height of the housing bubble.
GSC Group Inc. was one of several firms that helped banks including
Goldman Sachs Group
<http://online.wsj.com/public/quotes/main.html?type=djn&symbol=GS> Inc.
put together deals that allowed investors to bet on the housing market.
The New Jersey investment firm turned down Goldman's request to select
assets for the debt deal at the center of the agency's fraud lawsuit
against Goldman, according to a person familiar with the matter and an
email released by a Senate subcommittee this week. The concern: The deal
was too risky for investors, according to the person and the email.
GSC received a subpoena from the SEC last summer and held subsequent
discussions with the agency, including in recent weeks, according to an
executive at the firm.
"GSC's involvement here is strictly as a witness, and we're cooperating
with the SEC," said Daniel Ross, a lawyer for the firm.
A spokesman for the SEC declined to comment. Goldman and an employee on
the deal who also was sued, Fabrice Tourre, have denied wrongdoing.
GSC was founded in 1994 as Greenwich Street Capital Partners Inc., a
private-equity unit of Travelers Group. In 1999 it became an independent
company and now goes by GSC.
GSC, which manages about $8 billion, counts among its senior investment
professionals five Goldman alumni, including GSC's chief executive and
chairman, Fred Eckert. Goldman regularly offered GSC a chance to work on
its debt deals earlier this decade, according to someone close to the
matter.
A representative of GSC said executives who ran the firm's mortgage unit
didn't come from Goldman and the unit didn't have a special relationship
with the bank.
A Goldman spokesman said the firm had no comment.
In January 2007, Goldman bankers approached GSC to select
mortgage-backed securities for a complex deal known as a synthetic
collateralized debt obligation that it was creating at the behest of
hedge-fund manager John Paulson, At the time, Mr. Paulson was bearish on
the mortgage market, according to an email released this week by a
Senate subcommittee questioning Goldman executives and according to the
SEC complaint. GSC turned away the business.
"As you know, a couple of weeks ago we had approached GSC to ask them to
act as portfolio selection agent for that Paulson-sponsored trade, and
GSC had declined given their negative views on most of the credits that
Paulson had selected," said the email, from Mr. Tourre in late-January 2007.
Goldman eventually tapped ACA Management LLC to select the securities
for the deal, which was named Abacus 2007-AC1. The SEC alleges Goldman
and Mr. Tourre didn't inform investors that Mr. Paulson's firm, Paulson
& Co., played a role in picking the assets and that Goldman and Mr.
Tourre misled ACA about Paulson's position.
The deal quickly lost value, leading to investor losses in excess of $1
billion and gains to Paulson of about $1 billion.
GSC worked with Goldman on a $1.6 billion mortgage-linked deal called
GSC ABS Funding 2006-3g that closed in January 2007.
GSC also was involved in Anderson Mezzanine Funding 2007-1, a $307.5
million mortgage-linked CDO underwritten by Goldman in March 2007 that
soured quickly after it was sold, according to documents released by the
Senate subcommittee.
GSC agreed to manage the collateral of several mortgage-linked CDOs that
hedge fund Magnetar Capital had input on from 2006 to 2007, according to
documents reviewed by The Wall Street Journal and people familiar with
the matter. Magnetar purchased a risky "equity" slice of these and other
CDOs overseen by third-party managers and bought credit default swaps on
other parts of the same CDOs or similar deals that would help Magnetar
profit in a housing downturn.
Those deals also tumbled in value.
A spokesman for Magnetar declined to comment.
GSC stopped helping create new mortgage CDOs two years ago amid a
downturn in the market, according to the firm.


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