Goldman Sachs, under the leadership of Fabrice Tourre, used ACA Capital Holdings as a nominal portfolio selector to maintain the belief that Paulson and Co had no role in the CDO deal ABACUS 2007-AC1.
What this means is that investors buying into this CDO believed that ACA was deciding the portfolio of mortgage securities, when in fact Paulson and Co had a huge role in picking the portfolio.
Paulson and Co bet against the portfolio that they helped to set up. Goldman, arranging the deal, misrepresented the role of ACA and how the portfolio was selected. That is where the fraud comes in.
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