After the SEC’s Goldman Suit, Other Banks Being Scrutinized

Propublica reports:


On Monday, The Atlantic detailed how Deutsche Bank also did CDO deals with Paulson & Co. [3] (The Wall Street Journal also cited the Deutsche-Paulson CDOs [4] last week.) Deutsche allowed the hedge fund to help select the assets that would go into the CDO, and then, like Goldman, it sold that CDO to investors, apparently without disclosing that Paulson was betting against the CDO. One of those investors was the German bank IKB—which also invested in the deal at the center of the SEC’s Goldman suit, as well as another doomed deal that we’ve reported [5] the hedge fund Magnetar helped build and bet against. (Magnetar denies [6] it was “net” betting against its own CDOs.)

Here’s a key line from The Atlantic:

Two Deutsche Bank traders who requested anonymity say that Paulson’s role, both in selecting a reference portfolio and in shorting it, was never disclosed to any customers taking the other side of the trade on CDO deals. In fact, they never told clients who was on the other side of a trade. The traders cited IKB as one of the customers who bought CDO trades for which Paulson & Co. helped select the reference portfolios