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Goldman Introduced Paulson and ACA

Stocks in this article: GS

Updated to clarify the hedge fund investor was John Paulson.

NEW YORK ( TheStreet) -- Goldman Sachs (GS) introduced ACA Capital Management and hedge fund investor John Paulson to each other, Greg Palm, Goldman's general counsel, said during the company's first-quarter conference call on Tuesday.

The two parties would end up taking opposing bets on Abacus-2007 ACI, a pool of mortgage securities put together by Goldman that is at the center of the high-profile fraud case brought by the Securities and Exchange Commission against Goldman. The SEC has said Goldman should have disclosed to ACA that Paulson was planning to short Abacus, and played an important role in selecting the mortgages that would be put into the security.

Goldman shares were lower in recent trades, falling 1.1% to $161.53. The stock ran higher in premarket action shortly after its first-quarter numbers hit the tape but sentiment shifted as the conference call progressed.

UBS analyst Glenn Schorr pressed for details on how the two sides got together during the call, which Goldman took the unusual step of making open to the public, leading to this response from Palm: "I'm sure we would have put them in contact with each other." Palm went on to say he didn't recall the exact date that such a meeting would have happened.

In its published statement Friday, Goldman essentially said the SEC was asking it to disclose too much.

"The SEC's complaint accuses the firm of fraud because it didn't disclose to one party of the transaction who was on the other side of that transaction. As normal business practice, market makers do not disclose the identities of a buyer to a seller and vice versa. Goldman Sachs never represented to ACA that Paulson was going to be a long investor," the Friday statement read.

In other words, Goldman admits it introduced the two parties but says it would have been in violation of "normal business practice," to say who was short and who was long. If the SEC can prove Goldman somehow led ACA to believe Paulson was long, it will win the case. Then again, if the SEC could have proved that, it probably would have included those proofs in the complaint it filed Friday.

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