ACA Knew of Hedge Fund's Short Position, Former Paulson Exec Says

One of the key issues in the Goldman Sachs fraud case is whether ACA Management LLC knew that hedge fund Paulson & Co. was betting against the complex security it was helping to create.

Goldman brought in ACA as a third party to select the mortgage securities that would populate the collateralized debt obligation the bank was putting together at the request of Paulson. The hedge fund, which also helped in choosing the risky mortgage assets, planned to take a short position, but the SEC charges Goldman withheld that fact from ACA.

But CNBC reports that Paolo Pellegrini, a former top executive at Paulson, told SEC investigators in 2008 that he had informed ACA that Paulson was betting against the security, citing a person familiar with the matter.

If true, the disclosure might harm the SEC's case, which alleges Goldman misled ACA and another investor.

Paulson, which is not named in the SEC suit, sought to reassure investors in a letter Tuesday that the firm was "transparent and open regarding its concerns about the mortgage market which were driven by analysis of publicly available data."

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