Having reviewed Goldman's extended submission to the SEC, I have to agree with Erik Gerding at the Conglomerate who concludes that "if the SEC can show Goldman misrepresented Paulson’s role to ACA, it wins."

I speculated in my previous post that "much of the case will depend upon whether using the term “Transaction Sponsor” to describe Paulson was an act of deception" and Goldman seems to agree, devoting an entire page (pg 33) in their submission to counter this allegation. The arguments that Goldman presents are unconvincing - as Goldman asserts, it is indisputable that the term "Transaction Sponsor" is not "uniformly defined in the context of a CDO transaction, and it need not refer to an equity investor." However, the real question is whether it is reasonable to refer to a hedge fund seeking to short the tranches without any long exposure to the CDO as a "Transaction Sponsor". Even allowing for the admittedly wide ambit of the term, this is a generous interpretation. As I mentioned earlier, it is relevant whether there is any industry precedent for such a definition of the term - my hunch is that there isn't.

Also relevant are Gail Kreitman's non-response to Laura Schwartz of ACA's request for clarification on Paulson's role, and Fabrice Tourre's description of the equity tranche as "pre-committed" . The defence put forward for both are a little troubling. Essentially, Fabrice Tourre "testified that he had no recollection of its meaning" and Ms. Kreitman was just an intermediary who did not understand "the significance of Ms. Schwartz's statements suggesting that she believed Paulson to be an equity investor".