John Paulson, whose hedge fund is one of Boston Scientific Corp.’s (NYSE:BSX) biggest stakeholders, is embroiled in the Securities & Exchange Commission’s indictment of Goldman Sachs Co., accused of “fraudulent misconduct” in an alleged scheme to mislead the public over the sub-prime mortgage crisis.
The SEC filed a civil suit against Goldman Sachs April 16, accusing the hedge fund manager of misleading the public with statements concerning the sub-prime mortgage securities whose collapse helped precipitate the near-meltdown of the global financial market.
Paulson, who runs New York-based investment fund Paulson & Co. Inc., which owns more than 99 million shares of Boston Scientific, allegedly created a fund for high-risk mortgages he knew would fail and then bet against to gain a profit in April 2007, according to the indictment.
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According to the SEC’s indictment, Paulson played a significant and hidden role in the portfolio selection process. He’s alleged to have paid $15 million to Goldman Sachs to create a collection of collateralized debt obligations for Goldman investors. The CDO, ABACUS 2007-AC1, was marketed to the public as a solid investment, even though Goldman Sachs and Paulson allegedly knew otherwise. The so-called junk assets cost investors more than $1 billion in losses; Paulson, who staked his hedge fund’s fortunes on the failure of the CDO, gained approximately $1 billion from the collapse.
Aside from Goldman Sachs, the only other defendant named in the indictment is Goldman employee Fabrice Tourre, who was allegedly responsible for creating the ABACUS fund and marketing it to investors, despite his alleged knowledge of Paulson’s intention to profit from the fund’s eventual collapse.
When the housing market crashed in 2008 as increasing numbers of sub-prime borrowers defaulted on their loans, Goldman Sachs reported $13.4 billion in profits, a record for the company. In the indictment, the SEC recommends that Goldman Sachs and Tourre “disgorge all illegal profits” made under false pretense, pay interest on the illegal profits and grant equitable relief to benefit the investors they allegedly bilked.
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The Massachusetts Medical Devices Journal is the online journal of the medical devices industry in the Commonwealth and New England, providing day-to-day coverage of the devices that save lives, the people behind them, and the burgeoning trends and developments within the industry.
