Courtesy of Pam Martens.
John Paulson, Hedge Fund Manager, Is Praised in the 2010 Spring/Summer Issue of the Alumni Magazine of the Stern School of Business
“Ick” is a word that comes to mind far too often when writing about New York University under the tutelage of its President, John Sexton.
In February, we wrote about how U.S. Treasury Secretary, Jack Lew, got sweetheart deals while serving as NYU’s Chief Operating Officer, including a $1.4 million mortgage that was completely or partially forgiven, depending on which way you calculate his departing gift of $685,000. During his tenure, students saw their tuition skyrocket by 40 percent. In 2011, Amanda Fairbanks, an investigative reporter at the Huffington Post, revealed that in order to meet the burgeoning costs for room and board and tuition, 498 young women at NYU were moonlighting as prostitutes to wealthy sugar daddies through an online match-making service.
Yesterday, we reported on NYU’s financing of multi-million dollar brownstones for law professors – tossing out these outlandish perks like penny candy at a carnival booth. While researching that article, we came across yet another ick factor: NYU’s Stern School of Business and its love fest with hedge fund kingpin John Paulson who runs Paulson & Co.
On April 16, 2010, this is what the Securities and Exchange Commission had to say about Paulson’s business morals when it announced formal charges against Goldman Sachs pertaining to the infamous 2007 ABACUS deal: “The SEC alleges that one of the world’s largest hedge funds, Paulson & Co., paid Goldman Sachs to structure a transaction in which Paulson & Co. could take short positions against mortgage securities chosen by Paulson & Co. based on a belief that the securities would experience credit events.” Translation, Paulson helped Goldman select dogs that would default or receive credit downgrades and then made easy bets that they would.
The SEC complaint goes on: “…after participating in the portfolio selection, Paulson & Co. effectively shorted the RMBS [Residential Mortgage Backed Securities] portfolio it helped select by entering into credit default swaps (CDS) with Goldman Sachs to buy protection on specific layers of the ABACUS capital structure. Given that financial short interest, Paulson & Co. had an economic incentive to select RMBS that it expected to experience credit events in the near future. Goldman Sachs did not disclose Paulson & Co.’s short position or its role in the collateral selection process in the term sheet, flip book, offering memorandum, or other marketing materials provided to investors.”
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