Court Denies Goldman Sachs’s Motion to Dismiss in Case Arising out of Abacus CDO

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On April 24, 2012, New York State Court Judge Barbara Kapnick denied a motion brought by Goldman Sachs Group Inc. (“Goldman Sachs”) to dismiss an action brought by ACA Financial Guaranty Corp. (“ACA”) arising out of ACA’s provision of financial guaranty insurance wrapping the Abacus 2007-ACI CDO issued by Goldman Sachs. ACA alleged that Goldman Sachs misrepresented material facts about the economic interest of the hedge fund Paulson & Co. Inc. (“Paulson”), an investor in the CDO. According to ACA, Paulson, which participated in the selection of the portfolio of mortgage loans backing the CDO, was represented to be a long investor but in fact took a short position against the deal. Judge Kapnick found ACA’s allegations sufficient to state a claim that Goldman Sachs fraudulently concealed the information about Paulson’s position and thus fraudulently induced ACA to insure the CDO.  Order.