The government’s star witness in the trial of ex-Goldman Sachs banker Fabrice (“Fabulous Fab”)Tourre said she was led to believe that hedge-fund titan John Paulson was backing the complex mortgage deal at the heart of the case — not betting against it.
Laura Schwartz, a former executive at bond insurer ACA Management, testified she understood Paulson to be an equity investor in the deal, known as Abacus, following a series of email exchanges and meetings with reps from Paulson & Co. and Goldman.
Her testimony is key to the Securities and Exchange Commission’s allegations that Tourre misled investors in 2007 about the role of Paulson in engineering the deal.
“I had gone into the meeting assuming that they would be the equity investor in the transaction,” Schwartz told a Manhattan federal jury today.
Wearing a dark blazer, matching skirt and pearl necklace, Schwartz testified that no one at Goldman told her that Paulson was not an equity investor.
Schwartz, who left ACA in the fall of 2007, said her former firm worked only with Paulson’s former right-hand man, Paolo Pellegrini, in selecting the Abacus assets because she assumed the hedge fund was a long investor.
Her story is similar to that of ex-Goldman salesperson Gail Kreitman — a liaison between Goldman and ACA — who testified last week that she also was under the impression that Paulson was backing the deal.
“I believed based on the transaction summary, the initial conversation with Goldman [and an email] referring to their ‘equity perspective’ that they would be equity investors,” Schwartz said under questioning from SEC lead lawyer Matthew Martens.
“Did anyone from Goldman [say] that Paulson did not have an equity perspective?” Martens asked.
“No,” Schwartz said.
She also suggested that ACA may not have done the deal with Paulson had it known he was betting against the housing market, saying the firm had never done a transaction with a “purely short investor.”