[ by Melanie Gretchen ]

Paulson & Co. asked a judge to dismiss a lawsuit alleging the investment management firm conspired with Goldman Sachs Group Inc to get a bond insurer to guarantee payments on an investment allegedly designed to fail.  Paulson argued it "made no misrepresentations" to ACA Financial Guaranty about the collateralized debt obligation known as Abacus.  ACA, which in 2011 sued Goldman for $120 million, added Paulson and its hedge fund Paulson Credit Opportunities Master II Ltd in an amendment in January.

In the amendment, the ACA accused Goldman and Paulson of deceiving the insurance company into believing Paulson was investing in the CDO.  In fact, Paulson later shorted the CDO, which the firm said had nothing to do with how Goldman offset its risk or how Abacus was sold to investors.

"By its nature, a synthetic CDO like Abacus must have a long and a short. Paulson entered into a credit default swap with Goldman to take a short position on it. Paulson's obligations ended there." -- Paulson, in its filing.

ACA has already won a case involving Goldman and Abacus.  In 2010, Goldman settled with the SEC for $550 million over claims it misled investors in Abacus, without admitting wrongdoing.  Three years later, Paulson is intent on containing the damage related to the CDO.  ACA's case this year, the firm said, relies on "mischaracterizations, emails unrelated to Abacus, and snippets of correspondence taken out of context."

The case: ACA Financial Guaranty Corp v Goldman Sachs & Co, 650027/2011, New York state Supreme Court (New York County).

For further details, go to [Reuters, 3/18/13].