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Breaking Stuff

Breaking Stuff

Courtesy Adam Warner at Daily Options Review 

Breaking news on CNBC! This, from Clusterstock.

According to CNBC’s Steve Liesman, the SEC has evidence that contradicts its own argument that ACA was mislead on the nature of John Paulson’s intent.

Specifically, in interviewing Paulson lieutenant Paolo Pellegrini, ACA was informed that Paulson intended to go short the CDO.

Not surprisingly, this was left out of the SEC complaint.

The SEC really needs to answer for this.

Remember always, this is a PR fight. Certainly at this juncture. And in any PR fight, you want to get your story out as if it’s not from you, but channeled through some independent "news" source. CNBC could not provide a better venue. They’re naturally sympathetic to your side to begin with, and they’ll funnel any "news" you want through their mouth’s. And Clusterstock….well, judge on your own, all I’ll say is they rarely meet an attack on Goldman that they don’t seek to diminish.

Look, this might be an accurate account, the SEC is certainly not above reproach, to say the least. But it just reads like a calculated PR offensive. Paulson’s lietenent saying ACA knew? Is he exactly unimpeachable? Doesn’t he have every incentive in the world to just say this? He can easily couch that as his understanding, that ACA was informed. Perhaps Fall Guy Fab forgot to tell ACA, we don’t know, neither does Paulo.

Here’s another way to look at it. The SEC has this info, it it becomes demonstrable fact that ACA knew Paulson was shorting it, it clearly destroys their case. Whatever SEC’s motivations are here, they’re not bringing a case out that will get shot down that simply. So I suspect the "ACA Knew" defense is a "he said, she said" thing. You can’t prove a negative, i.e., you can’t prove ACA didn’t know. But you can prove they did know if there’s some evidence that shows they were informed. Perhaps that evidence is out there, but I don’t believe "Paolo Says So" is that evidence. 

*****

Adam’s follow-up (the CNBC clip, not the musical):

Let’s Go To the Videotape

OK, here’s the CNBC clip in question.

This was from Paolo’s actual testimony to the SEC. If you don’t feel like watching (don’t blame you), basically he says he met with ACA to discuss the deal and would have made clear they were shorting the deal, but doesn’t specifically remember discussing it. In the language he uses, he says "that was the purpose of the meeting", he doesn’t say he actually said it.

CNBC also says that AT THE TIME, longs were scrambling to get more and more of these deals, and Paulson was regarded as too bearish. Also that shorts standardly chose what went in the deals. Neither makes particular sense though, I don’t believe it’s in dispute that Paulson initiated the deal, nor is it in dispute that he paid $15 million to GS to get this on the tape (or whatever they call it). If the world in 2007 was dying for someone to come in and short these pups, why is the short paying such a steep "commision"?


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