Abacus and after

Ever since Goldman Sachs agreed to pay a $550 million fine to settle the SEC investigation into its Abacus 2007-AC1 CDO in April last year the market has been braced for further actions against synthetic CDOs. Shortly after the Abacus settlement SEC enforcement chief Robert Khuzami stated that the agency would launch investigations into conflicts of interest in similar deals, a series of which are now under investigation. This is the focus of much speculation in the market given the flood of litigation that might follow further settlements. Plaintiffs who have so far been unwilling or unable to bring cases against the banks will likely be encouraged by the prospect of government underpinning for their arguments and forensic examination of bank behaviour. The email evidence that has so far come to light makes it clear that, for most in this market, the collapse of the sub-prime mortgage market was very much expected well before mid-2007. This could certainly weaken their defence in some situations. "You can always count on bankers writing something stupid in an email," muses one lawyer. "They all think that they have a great sense of humour until it starts costing them money." The SEC launched a civil fraud investigation into the mortgage bond business of a number of Wall Street firms in 2009 and criminal probes by the Justice Department and Manhattan US Attorney’s office into some of these activities have followed on from the initial findings.