SUPREME COUR | (OF TIT, STATE OF NEW VORK COUNTY OT NEW YORK _ Taadex No, €51022201 1 ACA PINANCLAL-CUARANTY CORD, pick, 3) (aze Pun ave: 1462018 Pi te Supplemental Summons Filed (til Cavey GO" DMAN, SACHS & CO, PAUTSON & CO. INC, and PAUTSON CREDIT OPPORTUNINS MASTER EL LID. Plainif designates New Vink CGnnty asthe place of afer \Youme is has on Plaintiff's Pencil Pace of Busincss 600 Fil Ave, Now York, NY. 10020 “TOJHE ANOVT-NAMED DEEENDANTS PAULSON & CO. NE. and PAULSON CREDEL OPPORTUNITIES MASTER I, 1.1. ‘Yon ae hoteby stmmoted th answer the Second Amended Cosmplain i ts acc ond le serua copy af your answer on the Plaintiff's Atlunneys within rwenty (20) ays attr tne serviee of this stmmaans, exclusive oft cay of service for win iy 90) days attorthe servioe is curate if thir sumone it not personaly delivered you wit the Sta fo New York}: an in save of your faim to answer, judusnest wil be Laken against yor hy dette the sliefdsmanded inthe compl. Dalal: New York, New York Hanuery 2013 KASOWTT2, BENSON, TORRTS & TRIEDMAN LL? By Ware Rasoweite Andre K. Ce rose, Welch 1433 Broadway ‘New Vouk New Yook "0019 (213 506-1700 domes for Pov A8 FO: Pauteond Ca. asd Panisen Credit Upponries Master 1, Lid 22S] Aveune ofthe Americas Sith Phase Dow Vork, NY 10020 SUPREME. COURT OF THL STATE OF NEW YORK COLNTY OF NEW YORK ACA TINANCLAL GUARANTY CORY, Indes No. Plain, (68002772011 against SECOND AMENDED COMPLAI GOLDMAN, SACHS @ CO, PAULSON & CO, TNC. PAULSON CREDEL OPPORTL NTIS MASTER 1.70. Detedant. Piainiff ACA FINANCIAJ GRARANTY CORPORATION ACA"), for its complaint gins? defendant GOLDMAN, SACHS & CO. (Cokdmn Sauks", PAII.SON & CO.. INC, CP aulson 2 Ce”) and PAULSON CREDIT OPFORTUNTTITS, ss MAS FI I, 11, Paulson Credit Opporteninicg." and rogesker wih Pure & Co, *Paulse alleges as eos Pralicningry Sixtement 1. thi rau eto aes trom tbe sgreginsearaluel i Cildman Sachs. a ‘promis inscatccnt ask, al hedge fund eisnl Paulson, i conceiving and varkeringn sruelured Fiance peataet = bazed ena pontlin a faves somes selected laggy ny Palm - ehh sa esi oul sat: Halon could reap huge ofits hy sorting the poco an Govoman Sacks oul’! reap buge toss. Galan ‘cas. Panloon conspired frudulenly induce AA, a monotne bond insnesoee company now operating in auvoff to provi Financial yuwmuty iasusanse fr that structured finance poetic Golden Salis and Pasison did sa by decay ACA ins beLeving thar Paulson wat uo be tbe “eouicy™ invest ~ J @, along investor in that peedlct, a zyttactccollatsrstiad debt ubligation Guldman Sachs ea Jed ABACUN 200%. ACI ABACUS", In fac as Goitiuan Sachs and Panlson ness, Pasi tele take an enotmous sheer postion in ABACTIS, thereby tabing ap cgareme postion in the transaction precisely vocisty ka ACAS positon as insurer 2, Hint Beulbom’s le ele a shove investou sclecsing the pom lio heen known, aeitker ACA noragyane cle would have previded Noancial guaranrytasmra Jor ABACUS, Tecaune uf Gulden Saebs ans Paulson's deceit ~ which led ACA to eeaconabty bolic hat, AHACIIS wats valuable produc: selected largely hy the eculty inveslur-ACA insupcd a Hnanfal penduct that was doonned ts Zi 3. Toell@utaate ther sotome, Gofdmam Ssehe fraudlently nisepsuseared 19 ACA that, aigng other things, Paulson, asthe purpurted ansaetion sponser,” had “pre- commited” Us ingest inthe equity oF ABACUS, apd thacthe exons imlrest of Pauiun oad] ACA in ABACUS were, therefore, Ligned,” and Paulson, using what Pavlsan self has ndonited was a previousiy-cimployed aed velltchoorsed “srip(” Frauéulenty pag the roe” of the“sly Investor” in ABACUS. Indeed, the diy soconfing af atelophome convertion between ACA and a Goldman Sauhs Managing Dinectorceconts Goldman Sachs express sul unequivoually missegeesenting te ACA duu Paulo's suanooic interst in he “epi structs” of ABACUS was 16U% equity.” Nee only did Gokiman Saels aad Paplsan deecive ACA into believing Ah. Paulaon was to Bethe “equity investor in ABACES, Guldman Sachs and Paulsen also soersty rgtoed to sacs Uae trssetion Jn a manaet ~theough wt they calle a “Sins Vener Agreement” thet concealed Paulson's short imerest in ABACUS. 4. Goldman Sacks engaged in shit egropiouswiscundus wotnstanding sta it opr y ache tha is patiipaionpasscnted*repoasonal risk” and ler at east one other aaj invesunen bere decline to purlivpue fo that weuy season Golknan Sache has since seed S.C civil barges auaiug cut ofthis finuds eet conde, sige pay @ S850 mon fies 5. Citing ABACUS a2 prominsnt example of Gukiman Sache's conmibution ts causing the recent Finupcialexsis, the Caited States Nonaze Permanent ‘Subcommatts on lavestigations (the “Sabcummmittes" conclude afer at 18-month inveutigation that Golde Sacks was ane of tho SselPinterestod primers a ky’ al ‘complceted finemeial schemes that helped guar the css.” Weta respect ABACTS in particule, he Subsurnnitee conctudsl shat Goldman Sachs kaew Jhut Paulson sould “protic o2.y if ABACLIS| los! wulues” yet ullowed Paulson ta “play a agian cols in selockng the assets” while (ling to disclose Vanlscn's tue “investment objective.” 6. AGALor ae prinepel victims of Gellman Sass a! tsmsnn’s fraudulent scheme, brags this ation eeover ema $0 milton ik compensatory mages ~ the Inssex proximalsty saused by Goldtaan Sacks and Paulson" missonéuct -- sind $90 ition in potive damages 7. ‘This Court has personal junction aver defends perszat 10 PLN § 101, as they are downed ie New Yeuk Store, or pursuant ia CPLR § 392, in as sel a the causes oF acon asecrtet hers aise fromm defect? (@ uansecting Lwssiness in New Vork State (7) heving commited a odious act within New York Stats, ador Gis having cammnilted a tortious et withowe New Vark Stats exusing injury ppeupeity within New York State 8. Venue is proper persue CPLR § 04, axameve mare partes sits in ‘Now York County the Parties 9. Yluintiff ACA, a Marsland stock insane ccrpention isa momiline Trt ns. eadqurted at 100 RH Aver, New York, New Yu, Puruant ea ‘structing plan anprosed by the Maryland Insorance Adbinistraon on or about ‘Angus, 2008, ACA opm ssa neal! Raaetal gutanyinsumance company i Ce se business purpose ef kenocng valid claims fre timely payment interest and ‘lsusae payment of principal on nisi aad ots ble een fond thal AGA seaman. mo fondant Cuildanan Sachs, «ogists US. broker-dealer, fa Tea paraembip Forined wader the laws of the Stale uf Now York. wit ie eae offee n New York, New York itr er the 11, Defendam Pactkom &: Co. is an investaent adesar re Tvestment Advisors Act of 1940 ane ingorposnted wid she hws uf the Slate of Pretnwar, with ty principal ice in New York. New York, As dhe ieestment manger ‘al Paulson Cred Opportunies, Passan de Co. al sas ite agent in consti with ABACLS, 12, Deteadant Paks (rodit Opportunites isu beige ft Jocorprvancl unekr tae las ofthe Stone oF Delawere wilh is piasipa. offic ie New Youk, New York Ents 1 Background A. The Danurs of the Bisancal Jrsimem at lst 13. Ui ate 2004, Paulson appmached Gulman Suche secking a way to sake a ‘massive shom position 99 sabpsime ‘esdontial emgage backed seewities CRMBS") ‘hich avy cssentelly puols of residential morigayes Una huve heen repuckaged inter bandh. ATEACOTS etsy eollassalied dbs abligation CD20") steno a pontolia of RMS, vhies enabled Panlson too precisely that, 1, ACDO .amavsottiekal security bined on a peels of ixeueincomne collateca, sovis us RMTIS, To estahligh « C1D0) an investment hark ineonporates a special purpose vehiele to which equity iavestous contrib capital, The special purpose vehicle eves ulditimal capi hy boning meet andl, therefie, cemmamly refered ses" ln she mel common type af COO, navn aa “eesh Five CRO, the lhe praceets of the notes to punshase collateral ad makes payments 9a the notes out of dhe cash (ove veneratel by The colleenil. Ax explained lesther below, ANAC was not» cash flowy CBO bua Ssynchetio” CLO, hemos ave divide Jn dittstont classes of tk, ken as “ance.” Payments on wtes ure tude in ander wf venir. Thus aes in Cao mnet senior Iranche the soll “super senior” tranche ~ are pad fist, while notes in mows junia: ‘ranches ate pald oaly éller cll senior oles have bee pain full, Ana rewll, wor oles have the lowest risk that they will not be paid lee to etal the walelying portfolio, However, nice note also beer the lowest interest male. Conversely, oars Janier notes have a higher sik that thy wlll aat be sshd, but they bear ahiper interest {ate relative the nen mate, 16. Faulty invostars-v # CIO are i the lowest nanche of ths capital simone, ‘hey sue Ue Girt us sur losses lribulale us defi nthe dering. collateral. Thus. the eqeasy tranche i often refereed 9.35 the “rss loss" tancts, Wile equity investors baw the highest patel rate wf rete, they say have ne bighent risk a iss, 17. COdeare frequently “arnppod” ~ that, a finanelal ynavary insurer (och #5 ACA) ieenes an instance pol.ey nnconk rang payne of senior rots in or above a specie trancte fu the capita suelure, karen athe “sttuesmesnt print” Thus, &ae Franctal gearnnty insucr suffors Losses only ifthe equily investment nd all noes beneath the attachewat paint are wip ou. Suh a Fimetal yuaranty policy fr the mest sonias portion of the capita structue is (ered toes “euperseacoe wap? indeter'eewap MCS") is an ovenhe-counter bt, aot tale on a formal exh) derivative consaetrelerensinga hond 9 her Financial sbigeion (he “reference obligaiony, the panies to & CDS are refs oa the proreron buyer ant ‘he peoreon elt, ‘the protection buyeroales ised pile puyroents.eomimanly sé sas prermiums, Uo the provecion sale. In exenngs, the proteeton sellor agro te make a “contingent pasenznt” tothe protection buyer i he reference ablation ceapericaves adefined eredit oven, such 2s 9 defuul. The cartingent psymone is typically orders of magaitade large than the peeraiom payments 1% Wher he prutelion bayer owas the netereace obligation, the CDS fivctions ko ap insrance peL.cy fo tho sane that say Tosses eon a defen othe selocencesligation willbe allel by pains oa the CDS, fa a naked” CDS, the prowetion buyer dees nor. own te reference obligation in whiah eae the protectin 0 rai fro a default of he bruger pions ise noe obligation ~ similar to fnsuring anceher person's rosidenee inthe expeation thal wil be desérayed hy a ire = because se protection bayer sill esta Largs contingent payment, In iver evens rhe protection seller kes the “on position ean it takes te position tise ee reforanco obligation wil perfoary and protection huyer ukes the “short” position ~ ‘mening it takes he pasition zhat the seoconce obligation will dctaul, 20. Anynthelic CDO ~ such as ABACUS — eomabines a CDO and CDSs, The Issvor dees not pnishase « pattoli ef callatecai Sut iestond acts as the protec seller fn ome ov mone C1XSa refering « portfels of collateral (the “reference polio", Liew vanh How CDO. a syathslic CDO way alse ise aates on which & pays prineipal a ts However a spmohatie C190 yanerates cash Maw bs pay he tes Foe Cae peeraiuns i eceivesshvan the aeoteeton kayce, not ftom ingame generated by the collaeral ibeld) The Tasuee invests the proveeds [Ro the le uF the nutes a lew-vish faults in the ‘which ¢ meas en make contest payments arising fra de rlerence portale 21, Synthetic C730 une tructured that Jang investoes can parteipar ja tae capital steuctue by prschasing nexos ox, vale cash (20s by sling protection on a specified anche oC che cyte] sucture, ‘Thus, synthetic CDOs de not ceuessue Ty sue votes “every tranche inthe capita slruclure, I the purhunce ol the Sinancial indicts, a sgnltetis CBO shat cloes nor isnee notes for evezy Irene in she capital steucure is “ot fully disw uted.” Whether an investor pucctases nis in or sets protection on a suc, the investor's exposuve w the vss of defo im che underly portlio isthe 22, Inu, w syuthotie C190 iva mechanisr un poli ona esssive scale from he flue ofthe colleeral spesitied in the <etorenee portolin. he protectin sellers, inohuding the financial guaranie af the auper senor nasehie oYshe capital sensor, and ‘hs notchol lors take te kang position — moaning hey heh take he postion Gs the reference perlfliu will pecfolm -- while ie puorgction buyers fake the short ysition — ancaning they take he protien ube reference peetFsin wil etn 1B, Ihe Role of treatment Hanks, "rumsaction Spunsoes ace Portal Selecrion Ages ma DO 23. An Jevestmont baaks*stmemnes" 9 CDO hy, ameng ther things, sealing the paramotrs of th capil structure, nue ce the abc equity ratio, the size ot each ware, us well as the fac a9 a9 and poe of ho oles. An inves tank “uaderoriie4 C0 Hy, amon oer this, purses wd bolting ths calla us be inthe poatflis and acting a1 itil her af protection Fem the Tuer (he “il pronelem hues Am imvestren bank ao places” Ge. anaes and ally he notes by, ainang other things, spnsring tho putin ofa private placement ‘ir orandhm, preparing nut mules acl mnlkig presomtations aed sles itehos to potential purchasers 24. A “Lansuction sparave” progoses that en investmet. bam understand sella CDO structed within parameters specified hy the wansaction sponsor, including,