Sunday, April 18, 2010

Goldman deal went through Cayman Islands

Well, what a surprise. In the much-publicised fraud case involving a lawsuit filed by the Securities and Exchange Commission against Goldman Sachs, it is absolutely no surprise to us to find that this deal, known as Abacus 2007-AC1, involves:

Issuer: Abacus 2007-AC1, Ltd., Incorporated with limited liability in the Cayman Islands
Co-Issuer: Abacus 2007-AC1, Ltd., Incorporated with limited liability in Delaware


The issuer of this $2bn CDO is a Cayman Islands Special Purpose Vehicle. You can see the structure of the thing on page 51. Note also an earlier story from McClatchy's, the only one we're aware of which focused strongly on the offshore aspect, and which notes that Goldman had 148 of these kinds of deals in the Cayman Islands.

"These Cayman Islands deals, which Goldman assembled through the British territory in the Caribbean, a haven from U.S. taxes and regulation, became key links in a chain of exotic insurance-like bets called credit-default swaps that worsened the global economic collapse by enabling major financial institutions to take bigger and bigger risks without counting them on their balance sheets.
. . .
In 2006 and 2007, as the housing market peaked, Goldman underwrote $51 billion of deals in what mushroomed into an under-the-radar, $500 billion offshore frenzy, according to data from the financial services firm Dealogic. At least 31 Goldman deals in that period involved mortgages and other consumer loans and are still sheltered by the Caymans' opaque regulatory apparatus.
. . .
Taxpayers got hit for tens of billions of dollars in the Caymans deals because Goldman and others bought up to $80 billion in insurance from American International Group on the risky home mortgage securities underlying the deals."

And of course, there's the opacity:

Goldman's Caymans deals were riddled with potential conflicts of interest, which Goldman disclosed deep in prospectuses that typically ran 200 pages or more.

All this is reminiscent of a document from the Bank for International Settlements, which we've blogged before, and which notes:

"The most common jurisdictions for US securitisations are the Cayman Islands and the state of Delaware."

And it added that in Europe:

"the most common SPE jurisdictions for European securitisations are Ireland, Luxembourg, Jersey, and the UK."

All secrecy jurisdictions - every last one of them.

Now in the latest round of stories about Goldman's alleged fraud, nearly every newspaper has ignored this fact, although to credit of a minority, including the FT, it was not ignored entirely -- though still only in passing.

Can't anyone see that there is a pattern here?

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