With All Due Respect to Beyonce: If You Don’t Like It, Then You Shouldn’t Put Your Name On It

Okay, so I admit I am feeling a little left out of the Goldman conversation.  So here goes: I concede I may be missing something, but I am not sure I see the fraud.  I see behavior I don’t like, and a company I might not want to work with in the future, but that's the extent of it.

The complaint alleges, among other things, that “ACA would have been reluctant to allow Paulson to occupy an influential role in the selection of the reference portfolio because it would present serious reputational risk to ACA, which was in effect endorsing the reference portfolio. In fact, it is unlikely that ACA would have served as portfolio selection agent had it known that Paulson was taking a significant short position instead of a long equity stake in ABACUS 2007-AC1.”

To me, as to investors, it looks like ACA is the one who didn’t hold up their end of the bargain. That is, Goldman’s role appears unseemly, and perhaps Paulson’s role, too, but ACA was the group that was to assess and select the portfolio.  According to the flipbook, ACA investments “are approved by a heavily experienced investment committee.” Other than the SEC’s statements, I don't see anything showing ACA did not do their own portfolio assessment. Thus, the buck stops with ACA.   

The SEC seems to imply that Paulson had veto power, rather than merely the chance to provide input. But there is no indication ACA didn’t take responsibility for the selection decisions, even if they did decide to let Paulson provide significant input. In fact, as the complaint states, ACA told Goldman,” [F]or us to put our name on something, we have to be sure it enhances our reputation.”  But that goes to how ACA looks in the marketplace, not whether ACA thought the investment was a good idea.  

I get the sense that Paulson was well respected, but is it really the case that Paulson’s intent to invest was a significant factor (perhaps the significant factor) in deciding whether the items were, in ACA’s view, good for the portfolio?  If so, isn’t that still ACA’s failure?  Furthermore, if Goldman must disclose Paulson’s role as an advisor, do they also need to provide disclosure of other sources considered by ACA’s committee?  Other people they may have consulted, newspapers reviewed, blogs read?  

I see why ACA might (should?) be angry with Goldman and/or Paulson, but from what I see, ACA signed off on the product.  They independently analyzed (or should have) the items in the portfolio.  The items ACA ultimately included in the portfolio were all items they could review and consider on their own. Either they liked it, or they didn’t.  If they didn’t, they shouldn’t have put their name on it. 

--Josh Fershee