By Nate Raymond
NEW YORK, July 22 (Reuters) - The former chief executive of a bond insurer central to the fraud trial of one-time Goldman Sachs trader Fabrice Tourre said on Monday he was 'pretty surprised' to learn billionaire John Paulson's hedge fund had bet against the mortgage deal at the center of the case.
Alan Roseman, the former CEO of ACA Capital Holdings Inc, said he only learned Paulson & Co Inc was not an equity investor in the notorious Abacus 2007-AC1 deal when the U.S. Securities and Exchange Commission sued Tourre and Goldman Sachs Group Inc in 2010.
'This transaction would have been stopped in its place' had ACA found out Paulson was short, Roseman said.
The testimony came at the start of the second week of the trial in the SEC's case against Tourre, a former Goldman Sachs vice president who the agency says misled investors in Abacus, a synthetic collateralized debt obligation marketed in 2007.
Tourre is the sole remaining defendant in the SEC's case after Goldman Sachs agreed to settle in 2010 for $550 million.
The SEC accuses Tourre, 34, of failing to disclose Paulson's role in selecting mortgage-backed securities linked to Abacus and the hedge fund's plans to bet against the deal.
ACA, which was also involved in selecting the deal's assets, was likewise misled by Tourre into believing Paulson was an equity investor rather than a short seller, the SEC says.
ACA agreed to insure a $909 million piece of it through its then-subsidiary ACA Financial Guaranty Corp.
The company renamed itself Manifold Capital Corp in 2008, as ACA Financial, the bond insurer, entered a settlement to unwind the billions in credit default swaps it wrote on CDOs.
ACA Financial went on to sue Goldman in 2011 over the Abacus deal. But in May, a New York state appeals court dismissed the case.
The testimony by Roseman, who served as CEO of ACA from 2004 to 2008, came a day before the SEC is set to call another ACA executive, Laura Schwartz, who is viewed as its star witness.
The SEC says Schwartz was ACA's main point of contact with Tourre and Paulson & Co, and that she understood Paulson would be an equity investor in Abacus. Paulson earned around $1 billion shorting the deal, while investors lost about the same amount, the SEC says.
Earlier Monday, the parties completed questioning of Gail Kreitman, a former Goldman saleswoman who acted as a go-between on the Abacus deal with ACA.
Kreitman testified on Friday that she had believed Paulson was a long, or equity, investor in Abacus.
But during cross examination, Sean Coffey, a lawyer for Tourre, pointed to a June 2009 deposition taken during the SEC's investigation in which she said she had not heard of Paulson being involved in the Abacus deal.
Kreitman said she thought the questions referred to John Paulson rather than Paulson & Co and said her memory was refreshed based on an 'enormous amount of email' she reviewed prior to the trial.
The case is SEC v. Tourre, U.S. District Court, Southern District of New York, No. 10-03229.
(Reporting by Nate Raymond; Editing by Steve Orlofsky) Keywords: SEC GOLDMAN/TOURRE
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