8 FINANCIAL CRISIS INQUIRY COMMISSION

Transcription

1 FINANCIAL CRISIS INQUIRY COMMISSION 9 RECORDED INTERVIEW 10 LAURA SCHWARTZ 11 ACA CAPITAL HOLDINGS, INC Job No.: Volume 1 of 1 25 Transcribed by: Bonnie Panek

2 1 P R O C E E D I N G S 2 2 MR. SEEFER: Thank you both for coming in. 3 As Robin has probably told you, we're with the FCIC. 4 Let me give you the blurb we give everybody before we 5 get into the meat of the interview. We were 6 established by a statute passed last year to figure out 7 the causes of the financial crisis, and so we're trying 8 to do that. 9 That statute tells us to look at 10 securitization practices. It tells us to look at 11 derivatives. It tells us to look at every institution 12 that failed or would have failed but for the receipt of 13 government assistance. We know that ACA was involved 14 in managing and investing in synthetic CDOs. Of course 15 we know about the Abacus transaction with Goldman. 16 And Goldman was one of those institutions 17 that received exceptional government assistance, so 18 that's why we contacted ACA and that's why we contacted 19 you. So, you know, we want to talk to you generally 20 about ACA's business, but of course we want to talk to 21 you specifically about the 2007 AC-1 deal also. 22 But before we do that what I like to do with 23 everybody so I know who they are and what they are in 24 context, can you just give me your educational 25 background and a brief description of your work

3 1 background since college? 3 2 MS. SCHWARTZ: My name is Laura Schwartz. I 3 went to the University of Michigan, graduated from 4 there, and then went to NYU and got a master of 5 business administration from NYU. I started working at 6 New York Life Insurance in January of I started 7 in their real estate investment group and I spent 14 8 years, 14 and a half years at the New York Life 9 Insurance Company in lots of different investment 10 roles. 11 The roles started as making commercial 12 mortgage loans and eventually evolved into -- from my 13 job there, running their structured product portfolio 14 which was asset backed, commercial mortgage backed, all 15 of those, credit cards, autos, you know, all of those 16 kind of structured products. And I left New York Life 17 in 1998 and went to Merrill Lynch where I became a 18 banker of residential and commercial mortgage backed 19 securities. 20 I was at Merrill until 2002, July, August of , and I joined ACA right after Labor Day in and worked at ACA to -- through September until the 23 beginning of October of 2007, so just over 5 years, and 24 since then I've worked in a sales and training 25 capacity, structured products, at a smaller regional

4 1 broker dealer. 4 2 MR. SEEFER: Okay. So when did you join New 3 York Life? 4 MS. SCHWARTZ: In 1984, February probably, MR. SEEFER: And you were there till '98? 7 MS. SCHWARTZ: I was there till '98, then 8 Merrill from '98 to '02, and with ACA from '02 to '07. 9 MR. SEEFER: Okay. Can you give me a 10 general description of your job responsibilities at ACA 11 in that five-year time period? 12 MS. SCHWARTZ: When I was hired at ACA I was 13 hired to be the portfolio manager for the structured 14 products, CDO asset management business, primarily 15 focusing on their ABS CDOs. I was hired as the 16 portfolio manager for their ABS CDOs, and I worked 17 there for three years in that capacity running the 18 credit and portfolio management on the ABS CDOs. 19 And then I believe it was '05. It may have 20 been '04 now. I don't even remember. My boss at the 21 time left. I think it was probably '04, and I took 22 over her role, which I became head of the asset 23 management for all of our products which included asset 24 backed securities, corporate bonds and leveraged loans, 25 and I continued to run that and the credit team's

5 1 portfolio management and credit until probably And in 2006 they separated credit from 3 portfolio management so that our credit could support 4 other areas of ACA as well, and I ran the asset 5 management business until I left in September or 6 October of MR. SEEFER: Okay. So we know from some 8 documents that we've seen that you were involved in 9 selecting the collateral in that Abacus transaction. 10 Did your job responsibilities prior to 2006 when they 11 separated the credit portfolio management functions 12 involve that? 13 MS. SCHWARTZ: Well, I would have said it 14 slightly different. I was not in charge. Our credit 15 department was responsible for reviewing and approving 16 or presenting to a credit committee all of the 17 underlying residential mortgage backed, commercial 18 mortgage backed corporate bonds. Whatever credit we 19 were reviewing was reviewed by the appropriate credit 20 committee or credit team and presented to a committee. 21 As the portfolio -- I was in charge of 22 portfolio management. Me, my team was able to use the 23 entire universe of approved credits and go through 24 those and select a portfolio based on all the credits 25 that had already been approved by ACA.

6 1 So it may seem like a slight nuance, but 6 2 everything that was in, for instance, the Abacus deal 3 had already really been approved and reviewed by our 4 credit team and our credit committee. So all we did, 5 we didn't select and approve the underlying credits. 6 We just selected them from a universe that had already 7 been approved. 8 MR. SEEFER: So is this on a CUSIP by CUSIP 9 basis, or is it more like approving Countrywide 10 mortgages? 11 MS. SCHWARTZ: No, no, no, CUSIP by CUSIP 12 basis. 13 MR. SEEFER: Uh-huh. 14 MS. SCHWARTZ: In fact, what our committee 15 did is because in a deal that a residential mortgage 16 backed -- let's take the heart of the discussion here, 17 residential mortgage backs. 18 MR. SEEFER: Uh-huh. 19 MS. SCHWARTZ: Generally one deal off of a 20 Countrywide shelf, for instance, since you mentioned 21 the name MR. SEEFER: Uh-huh. 23 MS. SCHWARTZ: -- would issue debt rated 24 from triple A all the way down to through double B and 25 even unrated tranches.

7 1 MR. SEEFER: Uh-huh, uh-huh. 7 2 MS. SCHWARTZ: So our credit team would look 3 at that deal overall to determine whether they liked 4 the shelf that it was being issued off of, the 5 underwriter, the servicer, all of those kind of things. 6 They would run multiple different stresses and then 7 they would recommend the lowest credit attachment point 8 that they were comfortable with. 9 So if they approved the triple B tranche 10 then anything triple B and above was eligible and 11 considered approved, so it wasn't necessarily like when you say CUSIP by CUSIP MR. SEEFER: Uh-huh. 14 MS. SCHWARTZ: -- we didn't put in every 15 single CUSIP. 16 MR. SEEFER: Uh-huh. 17 MS. SCHWARTZ: But if we approved the triple 18 B then we could use the double A and the triple A in 19 portfolios. 20 MR. SEEFER: Uh-huh. 21 MS. SCHWARTZ: If they only approved the 22 triple A then only that particular CUSIP could be used. 23 MR. SEEFER: Uh-huh. So -- thank you. 24 (Laughter.) 25 MR. SEEFER: I was asking something a little

8 1 different. 8 2 MS. SCHWARTZ: Okay. I'm sorry. I'm sorry. 3 MR. SEEFER: That was valuable information 4 anyway, so I appreciate it. But all I really wanted to 5 know was the role you were performing in the Abacus 6 deal, were those roles you were performing at ACA for 7 other deals before 2006, from 2004 throughout when you 8 were head of asset management? I was just trying to 9 just draw the distinction between your description of 10 your job responsibilities. 11 MS. SCHWARTZ: No real distinction. 12 MR. SEEFER: Okay. 13 MS. SCHWARTZ: I was always basically in 14 charge of the ABS CDO business, so MR. SEEFER: And part of that included 16 selecting from this existing universe collateral for 17 synthetic CDOs? 18 MS. SCHWARTZ: Or my team selecting, but 19 ultimately all reporting to me so I would take 20 responsibility for that, yes. 21 MR. SEEFER: Okay. So we've -- I mean, 22 ACA's counsel has responded to our document request, 23 and Robin, I think we talked about this earlier, but 24 they've just given us a listing by year of various 25 deals that I will show you, and it starts there but

9 1 most of them are on the second page. 9 2 And all I really want to know is like the 3 Abacus deal with Goldman, are these deals where 4 you were essentially performing the same type of 5 function as you were in that deal? 6 MS. SCHWARTZ: Oh, ACA -- 7 FEMALE SPEAKER: That's a selection for 8 every one? 9 MS. SCHWARTZ: For every single one? 10 MR. SEEFER: Yeah, just generally. 11 MS. SCHWARTZ: Oh, general, yes. ACA 12 selected the assets in every single one of these deals. 13 MR. SEEFER: Okay. 14 MS. SCHWARTZ: Sorry. I don't MR. SEEFER: No, that's great. And then you 16 or your team were the ones personally involved in doing 17 that? Yes? 18 MS. SCHWARTZ: The credit team of course 19 reviewed and approved and presented, and then we 20 constructed portfolios from all of those approved 21 credits. This one I was -- I came in at the closing 22 time, but it was a managed deal so I continued to be 23 responsible for this. 24 FEMALE SPEAKER: She's pointing to the first 25 one.

10 1 MS. SCHWARTZ: I'm sorry. The very first 10 2 one, ACA DS I was there at the closing, but 3 this was an actively managed deal, so responsible on an 4 ongoing basis, and these two corporate deals were done 5 actually before I joined as well. 6 I'm pointing to ACA CDS and , 7 but those were actively managed. I was responsible on 8 an ongoing once I took over the entire asset management 9 platform. 10 FEMALE SPEAKER: Did you also work on this 11 last one in 2007 since you left in 2007? 12 MS. SCHWARTZ: I believe that's the Goldman 13 deal, so yes, that one closed before I left. 14 MR. SEEFER: That's a CLO. 15 FEMALE SPEAKER: A CLO. 16 MS. SCHWARTZ: That's a CLO. 17 FEMALE SPEAKER: Right. 18 MS. SCHWARTZ: All of these were -- I was 19 hired just FEMALE SPEAKER: Right. 21 MS. SCHWARTZ: But this is a Goldman deal, 22 too MR. SEEFER: Okay. 24 MS. SCHWARTZ: -- just so you know. 25 MR. SEEFER: Okay.

11 1 MS. SCHWARTZ: Sorry. I'm pointing to ACA 11 2 CLO It's a Goldman deal. I'll go with the 3 underwriter on that one as well. 4 MR. SEEFER: Good memory. 5 MS. SCHWARTZ: This is my life. 6 MR. SEEFER: So were there -- generally 7 other than the Abacus deal with Goldman were there 8 other deals where folks other than ACA were involved in 9 selecting the collateral? 10 MS. SCHWARTZ: We always let our investors 11 look at the targeted portfolio. Deals were either 12 synthetic or cash or a combination of cash and 13 synthetic, and cash deals had a very long sort of 14 ramped up warehousing period. 15 So by the time we started marketing the 16 deals we would have 70 percent of the portfolio 17 purchased and investors always wanted to see those. So 18 there were times when investors ask that we not include 19 certain names and we would, you know, talk about that 20 and weigh the pros and cons of that versus them 21 investing or whatever, so there was always a discussion 22 with investors on the credits. 23 MR. SEEFER: Okay. And, I mean, the 24 allegation is there so I might as well cover it since 25 that's where we are. Did you know that Paulson was

12 1 going only short on the Abacus 2007 AC-1 deal? 12 2 MS. SCHWARTZ: I did not know that. 3 MR. SEEFER: Okay. And do you know if 4 anyone else at ACA knew that? I know you can't speak 5 for everybody else, but -- 6 MS. SCHWARTZ: I do not believe that anybody 7 else at ACA knew that. 8 MR. SEEFER: Okay. Now, the SEC alleges in 9 the complaint that -- words to the effect it would have 10 been unlikely had ACA known that that they would have 11 allowed Paulson to be involved in the selection of the 12 collateral. Is that accurate? 13 MS. SCHWARTZ: I think I would have worded 14 it differently. I mean, I think ACA stands by the fact 15 that we selected that portfolio. Every name in that 16 portfolio had been reviewed and approved by ACA. I 17 think ACA would have thought long and hard about doing 18 a deal from a reputational perspective if they had 19 known that somebody was solely betting against it. 20 MR. SEEFER: Okay. In other deals where ACA 21 has been the collateral manager, and again maybe I've 22 asked this but I just want to make sure that the record 23 is clear, do you know whether or not any investor in 24 any other synthetic deals was going solely short? 25 MS. SCHWARTZ: I do not know for a fact. I

13 1 do not believe other investors were solely going short, 13 2 but I do not know that for a fact. 3 MR. SEEFER: Okay. Now, it's also alleged 4 in the SEC complaint that had ACA known about Paulson 5 shorting the deal that it would have been unlikely that 6 ACA would have invested in the deal, and I think they 7 invested like 909 million in the deal. Is that 8 accurate? 9 MS. SCHWARTZ: I think there are sort of two 10 different things. Again, the investment in the deal 11 was through a super-senior guarantee done by our 12 structured credit department. While I sat on that 13 committee, I was not involved in the day-to-day 14 business of that at all and how they generated business 15 and what criteria they used to approve other than, you 16 know, sort of sitting in the committee and seeing the 17 final product. 18 Do I think -- I mean, my gut is that if we 19 had known that an investor was only shorting us I don't 20 think we would have, you know, agreed to be the 21 selection agent, nor do I then think it would have 22 gotten all the way MR. SEEFER: Okay. 24 MS. SCHWARTZ: -- to the structured credit, 25 but I don't know that. You know, that's my gut.

14 1 MR. SEEFER: So I know I've seen in the 14 2 documents, and I'll try to find it, but there was a 3 document that is I think the presentation to the 4 committee you sat on recommending the long investment 5 by ACA in the deal. What -- I mean, explain to me how 6 that works since you weren't involved in the decision 7 to invest but you are on the committee. You are -- 8 MS. SCHWARTZ: Right. 9 MR. SEEFER: -- part of the CDO selection 10 process. 11 MS. SCHWARTZ: You know, I'm going to go 12 back again. This was now over three years ago all of 13 this took place. Until all of this came back to my 14 attention -- obviously this is now basically public 15 record -- I did not even remember that ACA or know for 16 a fact that ACA had taken that long position. So with 17 that premise, this was an everyday business for ACA MR. SEEFER: Uh-huh. 19 MS. SCHWARTZ: -- whether it was managing 20 CDOs or investing in the credit default swaps on the 21 top of CDO positions through our structured credit, so 22 just as part of a everyday process, you know, they were 23 looking at the transaction. 24 There was a whole team that worked on those 25 structured credit pieces, and at a certain point I got

15 1 a memo about a credit committee on the piece. You 15 2 know, I just don't remember specifics. 3 MR. SEEFER: Is that a document that -- I 4 think that's the document where it was presented to the 5 committee. 6 MS. SCHWARTZ: That's -- 7 MR. SEEFER: Is that it? 8 MS. SCHWARTZ: That's correct. 9 MR. SEEFER: Okay. 10 MS. SCHWARTZ: To the best of my knowledge, 11 yes. Again, this was not produced by my group at ACA. 12 It was produced by a different group. 13 We had three different business lines at 14 ACA. One was my business line, which is the asset 15 management group, one was the structured credit group 16 that this was responsible for, and the third was the 17 municipal line. 18 MR. SEEFER: Okay. Nobody at Paulson ever 19 told you that they were going to go short on the deal? 20 MS. SCHWARTZ: No. 21 MR. SEEFER: Okay. I have at least seen 22 since the lawsuit got filed a report by one of -- in 23 the media that Paolo Pellegrini apparently testified 24 before the SEC that he did tell either you or someone 25 at ACA. Did Mr. Pellegrini ever tell you that Paulson

16 1 was going to short the deal? 16 2 MS. SCHWARTZ: No. 3 MR. SEEFER: Okay. I believe Mr. Tourre 4 testified in front of Levin's committee sort of that he 5 told you or someone at ACA that Paulson was going to 6 short the deal. Did Mr. Tourre tell you that Paulson 7 was going to short the deal? 8 MS. SCHWARTZ: No. 9 MR. SEEFER: Did anyone at Goldman tell you 10 that Paulson was going to short the deal? 11 MS. SCHWARTZ: No. 12 MR. SEEFER: Okay. Did anyone tell you that 13 Paulson was going to short the deal? 14 MS. SCHWARTZ: No, no. 15 MR. SEEFER: Okay. 16 MS. SCHWARTZ: Not that I recall. 17 FEMALE SPEAKER: Just so we're clear, when 18 you say short you mean solely short? 19 MS. SCHWARTZ: Solely short. 20 MR. SEEFER: Yes. 21 MS. SCHWARTZ: Solely short. 22 MR. SEEFER: And then there's also 23 allegations, and I've seen some documents that indicate 24 this, that you or folks at ACA were under the 25 impression that Paulson actually was going to be long

17 1 in the deal perhaps and that the first lost tranches Is that true that you believed that at some point? 3 MS. SCHWARTZ: Yes. 4 MR. SEEFER: Okay. And why did you believe 5 that? 6 MS. SCHWARTZ: In looking back -- again, 7 this was over three years ago, and in looking back at 8 the documentation there is a specific that 9 identifies Paulson as a transaction sponsor and it 10 talks about a precommitted first loss piece, and that 11 would -- the precommitted first loss piece would 12 generally be known as the equity tranche and, you know, 13 from what I can remember inferring from that, that 14 Paulson would have been the equity investor. 15 MR. SEEFER: Okay. 16 MR. MCCARDEN: Can I ask questions? 17 MR. SEEFER: Yes. 18 MR. MCCARDEN: So does the term sponsor 19 generally mean equity tranche in the CDO business? Is 20 that MS. SCHWARTZ: I don't think there was a 22 clearly, you know, absolutely sort of defined, but when 23 they would be used together MR. MCCARDEN: Uh-huh. 25 MS. SCHWARTZ: -- that would have been my

18 1 inference, when they would have been used together in 18 2 the same -- you know, a very short document. 3 FEMALE SPEAKER: Together with? 4 MS. SCHWARTZ: Precommitted equities, that 5 would have been my inference from that. 6 MR. SEEFER: Is that the you were 7 referring to, the one you believe that Paulson was 8 going to be long and that was you as a sponsor? For 9 the record and for the tape recorder it's a January 10 10th, MS. SCHWARTZ: Yes. 12 MR. SEEFER: -- or string, I guess no, just an . Okay. And then other than the 14 did Mr. Tourre or anyone else at Goldman tell 15 you that Paulson was going to be long the equity 16 tranche in the deal? 17 MS. SCHWARTZ: I do not recall any specific 18 instance where they told me. Through my documentation 19 I do refer to them as equity and equity perspective, 20 and I do not recall that ever being correct. 21 MR. SEEFER: Okay. And do you recall if 22 anybody at Paulson ever told you they were going to be 23 long on the equity tranche? 24 MS. SCHWARTZ: No, I do not recall them ever 25 telling me that either.

19 1 MR. SEEFER: Okay. Let me -- have you ever 19 2 seen this document before? For the record, it's a 3 January 29th, that looks to be an internal 4 Paulson. 5 MS. SCHWARTZ: No, I have never seen this 6 document dated Monday, January 29th, MR. SEEFER: Okay. Let me just say for the 8 record assuming it's internal, but it's an to 9 Mr. Pellegrini that states you're going to play the 10 role of potential equity investor when you meet with 11 BlackRock and TCW, correct? And Pellegrini responds I 12 already met with BlackRock and I will stick to the 13 script with TCW. 14 Other than seeing this have you ever 15 heard anything or seen any documents that indicated 16 Paulson was lending itself out or was representing that 17 it was going to be an equity investor in synthetic CDO 18 deals when it was not? 19 MS. SCHWARTZ: I have no knowledge of that, 20 no. 21 MR. SEEFER: Okay. It sounds like Mr. 22 Pellegrini was your main contact at Paulson. Is that 23 true? 24 MS. SCHWARTZ: And Sihan Shu, Mr. Sihan Shu. 25 MR. SEEFER: Okay. And you were meeting

20 1 with them and talking with them about the collateral to 20 2 be the referenced collateral in the Abacus deal; is 3 that correct? 4 MS. SCHWARTZ: From the documentation, yes. 5 MR. SEEFER: What does that mean, from the 6 documentation? 7 MS. SCHWARTZ: I mean, I remember meeting 8 them, right, and I see the back and forth in the 9 . Over three and a half years -- it's over three 10 years ago. It's sort of hard to recall specifics, but 11 I do recall the meetings. I don't recall the specific 12 context, but I see it in the s. 13 FEMALE SPEAKER: Just to clarify, your very 14 first meeting with them did not involve talk about the 15 collateral, correct? 16 MS. SCHWARTZ: I do not believe it did. 17 What I recall at the very first meeting was basically 18 ACA presenting its criteria to be a portfolio selection 19 agent. 20 MR. SEEFER: Given that ACA was selecting 21 the collateral why did it matter if Paulson was going 22 to exclusively short the deal and not be long in it at 23 all? 24 MS. SCHWARTZ: In and of itself in a tiny 25 little, you know, sort of stand alone vacuum it would

21 1 not have mattered, but again from ACA's perspective ACA 21 2 wanted to be a long-term asset manager in the market 3 generally with institutional investors, and our 4 reputation was really of paramount concern, and I don't 5 think you would enhance your reputation by doing a 6 transaction really solely for the benefit of somebody 7 to bet against it. 8 MR. SEEFER: When you were at ACA were you 9 ever approached with a deal like this where it was 10 disclosed that an investor wanted to exclusively short 11 the deal? 12 MS. SCHWARTZ: Not that I recall, no. 13 MR. SEEFER: So then you don't recall 14 rejecting any such deals? 15 MS. SCHWARTZ: No, I don't. Sorry. 16 FEMALE SPEAKER: Is that something you think 17 you would recall? 18 MS. SCHWARTZ: I think it is something I 19 would recall if they would only want to go short. 20 MR. MCCARDEN: So in most synthetic deals 21 would you have been aware of who the short party was on 22 the transaction and what their motive was, or would 23 that have been not transparent? 24 MS. SCHWARTZ: When we wrote a deal that we 25 went long synthetically --

22 1 MR. MCCARDEN: Uh-huh MS. SCHWARTZ: -- generally the short the 3 other side could be done in several ways. One, we 4 could go out, and we sometimes did, and we broadly, you 5 know, went out with a big list basically on who wants 6 to take the other side -- 7 MR. MCCARDEN: Uh-huh. 8 MS. SCHWARTZ: -- who wants to go short, and 9 in derivatives there are approved counterparties. 10 There are basically eight or so firms at any one time 11 that are approved. 12 MR. MCCARDEN: Uh-huh. 13 MS. SCHWARTZ: And so any of those eight 14 could have bid to be the one to go short. 15 MR. MCCARDEN: Approved. You mean by your 16 firm, by you? 17 MS. SCHWARTZ: No, no, by -- basically you 18 had to be an approved counterparty. I guess it wasn't 19 on an exchange. These days it could be through like 20 market partners or things like that. 21 MR. MCCARDEN: Uh-huh. 22 MS. SCHWARTZ: Individuals didn't come to 23 ACA to take the other side. It was all done through 24 one of the major broker dealers, so that's why I said 25 there are probably eight to ten sort of counterparties

23 1 from that first sector. So we could go long and the 23 2 short could be done in that way, sort of broadly 3 syndicated -- 4 MR. MCCARDEN: Uh-huh. 5 MS. SCHWARTZ: -- and lots of people could 6 bid on it, or you could do like we did in the Abacus, 7 more of a overall portfolio credit default swap and 8 then you would just phase in a correlation desk of a 9 major firm, and what that correlation desk then did on 10 the other side, I mean, who knows. They ran a whole 11 book, so that wasn't -- we never really knew what was 12 on the other side. 13 MR. SEEFER: So when you say a correlation 14 desk, do you -- in the Abacus deal do you just mean 15 Goldman? 16 MS. SCHWARTZ: Goldman, right. I mean the 17 part within Goldman that was responsible, right. 18 MR. SEEFER: Right. But in the end -- I 19 apologize. I'm not in the business and sometimes some 20 of these terms go right over my head MS. SCHWARTZ: Me, too. 22 MR. SEEFER: -- and I need, as one of my 23 colleagues who is not here would say, remedial 24 education. But when the Abacus deal -- my 25 understanding of the Abacus deal when it closes is that

24 1 Goldman in the first instance took the short side of 24 2 that synthetic deal; is that correct? 3 MS. SCHWARTZ: In that deal it is correct. 4 MR. SEEFER: Okay. So did you know anything 5 about whether or not Goldman was going to participate 6 out that short position to anybody else? 7 MS. SCHWARTZ: No, we didn't know. We had 8 no knowledge of what Goldman was going to do with that 9 risk. 10 MR. SEEFER: And is that common in these 11 kind of deals, again for the uninformed attorney? 12 MS. SCHWARTZ: I think it is common that you 13 don't know what's going to happen because they run a 14 book of synthetics. They could be, you know, hedging 15 their own book. They could be long, they could be 16 short, they could be doing lots of things. 17 MR. SEEFER: So what did Goldman tell you 18 guys about why they wanted to do this deal? 19 MS. SCHWARTZ: I don't think they ever 20 specifically said anything, but generally for 21 distributing and underwriting debt you earn, you know, 22 three to four percentage points on the overall debt 23 that's debt in equity that's distributed. There is a 24 placement fee and that's why they did the business. 25 MR. SEEFER: Was ACA involved at all in how

25 1 the proceeds were used that were paid by the long 25 2 investors, how those proceeds were used, the million that IKB -- 4 MS. SCHWARTZ: You mean in terms of it went 5 into the collateral agreement and the securities that 6 were selected to go into that collateral agreement? 7 MR. SEEFER: Correct. 8 MS. SCHWARTZ: Generally we were not, and 9 this was pretty standard across the street because the 10 Goldman or Merrills or whoever was that party to that 11 collateral agreement, they would guarantee the value of 12 the securities, so we generally considered them very 13 good credit risks, so where they actually went we were 14 not generally involved in that. 15 MR. SEEFER: Okay. And understanding you 16 weren't generally involved, did ACA know in this deal 17 how -- what type of collateral was going to be 18 purchased with the long proceeds? 19 MS. SCHWARTZ: I don't remember -- I don't 20 recall remembering what they were going to do with the 21 proceeds in this. 22 MR. SEEFER: Okay. One of the things that 23 you probably know now from the various hearings and 24 news articles, that in this time frame, the late '06 25 and into April of '07 when the Abacus deal closed,

26 1 Goldman was in the process or had completed the process 26 2 from going net long on real estate to net short on real 3 estate. 4 Did you know then that Goldman was in the 5 process of reducing its exposure to real estate and 6 mortgage assets? 7 MS. SCHWARTZ: No. 8 MR. SEEFER: No discussions about that at 9 the time? 10 MS. SCHWARTZ: No. 11 MR. SEEFER: Would that have made a 12 difference? 13 MS. SCHWARTZ: If they were in the process 14 of going from long to short, I don't know. I mean, I 15 just really don't. 16 MR. SEEFER: Okay. Bear with me MS. SCHWARTZ: Uh-huh. 18 MR. SEEFER: -- while I look at my notes. 19 MR. MCCARDEN: May I? 20 MR. SEEFER: Of course. 21 MR. MCCARDEN: So was there an equity 22 investor after all in Abacus? I guess I've seen 23 different accounts. I mean, my MS. SCHWARTZ: Nobody has definitively told 25 me either way. I have never seen anything specific.

27 1 My understanding from the senate testimony MR. MCCARDEN: Uh-huh. 3 MS. SCHWARTZ: -- is that no, there was not 4 an equity investor. 5 MR. MCCARDEN: Now, would that be something 6 you would know at the time as a CDO manager, or how 7 would that usually work? 8 MS. SCHWARTZ: Well, we were not the 9 underwriters, of course. The investment bank was the 10 underwriter. 11 MR. MCCARDEN: Uh-huh. 12 MS. SCHWARTZ: So we would always ask for a 13 list of investors or try to get from them a list of 14 investors, but they did not have to share that. 15 Remember that's their -- to them that's their sort of 16 proprietary information, who they can sell this paper 17 to, because they wouldn't want us sharing that with, 18 you know, other investment banks or going to the 19 investors directly and going around them, so we only 20 found out if they wanted us to know at the time. 21 MR. MCCARDEN: Uh-huh. 22 MS. SCHWARTZ: And sometimes even if we 23 didn't find out at the time we would find out after the 24 fact. Investors would contact us and say oh, we 25 invested in your deal, can you put us on your monthly

28 1 newsletter or something like that MR. MCCARDEN: So I guess we spoke to some 3 market participant, and I'd have to look through my 4 notes to figure out who it was, but who said that -- 5 and I think they were probably just going off of what 6 was in websites, that the equity tranche was a unfunded 7 synthetic tranche, in other words that it didn't really 8 exist, and I guess the only tranches that did exist 9 were the IKB -- well, the IKB was the only funded one 10 and then the super-senior was unfunded. 11 Does that make sense that that could be the 12 description? 13 MS. SCHWARTZ: It could have. I mean, it's you know, funded and unfunded in synthetic, like you 15 never really have to fund, right. 16 MR. MCCARDEN: Uh-huh. 17 MS. SCHWARTZ: You could always be -- you 18 could take the equity risk without funding it. You 19 could do it through also a credit default swap. 20 MR. MCCARDEN: Uh-huh. 21 MS. SCHWARTZ: IKB, again, I don't even know 22 a hundred percent what they did at all. Nobody's ever 23 told me. 24 MR. MCCARDEN: Uh-huh. 25 MS. SCHWARTZ: If they took it in funded

29 1 form then they took a note as opposed to a credit 29 2 default swap. 3 MR. MCCARDEN: Uh-huh. 4 MS. SCHWARTZ: ACA as unfunded would have 5 taken a credit default swap. You could be unfunded 6 equity as well as unfunded triple A or funded. It 7 didn't really matter, and when I looked back at the 8 offering memorandum it's not clear as to what it was. 9 MR. MCCARDEN: Would that have been an 10 unusual structure? 11 MS. SCHWARTZ: No, on a transaction, no, 12 where you could take synthetic risk. No, you could 13 always go either way. 14 MR. MCCARDEN: On any tranche? 15 MS. SCHWARTZ: On a synthetic. If it was a 16 cash deal supported by all cash assets MR. MCCARDEN: Uh-huh. 18 MS. SCHWARTZ: -- you had to go pretty much initially you had to be funded. Does that make 20 sense? 21 MR. MCCARDEN: I'm still not sure whether I 22 understand whether there even was somebody on the other 23 side of the equity, whether as a -- receiving a note or 24 a CDS. I think it was implied on one of the websites 25 that it was just theoretical, there wasn't anybody

30 1 taking the equity risk MS. SCHWARTZ: That is what I have been led 3 to believe by the senate testimony, but my 4 understanding was there was going to be somebody on the 5 other side. 6 MR. MCCARDEN: At the time that was your -- 7 MS. SCHWARTZ: Correct. 8 MR. MCCARDEN: Okay. And that specific 9 thing, having the equity be just theoretical, was that 10 common? 11 MS. SCHWARTZ: In a transaction that's a 12 hundred percent synthetic MR. MCCARDEN: Uh-huh. 14 MS. SCHWARTZ: -- that's all theoretical, 15 right, right, so it would have been unfunded, it could 16 have been unfunded. 17 MR. MCCARDEN: Okay. 18 MS. SCHWARTZ: Sorry. 19 MR. SEEFER: So I just want to show you a 20 couple of documents and confirm that they mean what I 21 think they mean. 22 MS. SCHWARTZ: Okay. 23 MR. SEEFER: So let me show you this 24 February 28th, 2007 from you to the CDO team that says 25 Abacus 2007 AC-1 was launched yesterday, and then it

31 1 says while it is a CDO, one investor is taking all the 31 2 equity in a triple B risk, paren, the zero to nine 3 percent tranche, and our role is one of portfolio 4 selection agent. 5 Let me show that to you, but my question is 6 going to be who was the investor that you believed was 7 taking the equity tranche in the triple B tranche? 8 MS. SCHWARTZ: My understanding was that it 9 was Paulson that was taking the first loss MR. SEEFER: And MS. SCHWARTZ: -- of tranche. 12 MR. SEEFER: And I'm sorry. I didn't mean 13 to interrupt you. And that understanding was based on? 14 MS. SCHWARTZ: You know, in going back three 15 years later in looking at the back and forth, by 16 Goldman showing transaction sponsor precommitted first 17 loss, by me referring to Paulson pretty continuously as 18 to equity investor, equity perspective. 19 MR. SEEFER: Okay. What do you know about 20 Paulson and these hedge funds in general at the time? 21 Did you know the general MS. SCHWARTZ: Nothing. 23 MR. SEEFER: Okay. 24 MS. SCHWARTZ: Until Goldman had mentioned 25 it I had never even heard of them, so I think I had,

32 1 you know MR. SEEFER: And -- 3 MS. SCHWARTZ: -- looked it up at the time 4 but, you know, I don't recall -- I didn't know them. 5 MR. SEEFER: Okay. And at the time, the 6 time being late '06 to April of '07 when you're doing 7 the deal, you don't recall any discussions with 8 Pellegrini or others where, you know, generally we're 9 going short. 10 MS. SCHWARTZ: No. 11 MR. SEEFER: Okay. Let me ask you if you've 12 seen this document which I believe is the same date as 13 the senior credit committee presentation that you have 14 there, and for the record a February 27th, string, Goldman document after the announcement of the 16 deal, a guy named Edward Steflan (phonetic) writing to 17 Peter Ostrem. 18 By the way, have you heard of either Peter 19 Ostrem or Edward Steflan? 20 MS. SCHWARTZ: Steflan, yes, I have. 21 MR. SEEFER: And who was Edward Steflan? 22 He's a Goldman guy, I can tell you that. 23 MS. SCHWARTZ: No, I don't think he was. 24 MR. SEEFER: Oh. 25 MS. SCHWARTZ: I think Steflan was with a

33 1 firm called GSC MR. SEEFER: I'm sorry. That's right. 3 MS. SCHWARTZ: I don't think he's Goldman. 4 MR. SEEFER: Yes. 5 MS. SCHWARTZ: And so GSC. Peter Ostrem was 6 the person, a banker at Goldman, so I would not have 7 ever seen that I do not believe, but I don't 8 think he was at -- I think he's not at Goldman. 9 MR. SEEFER: Do you know if GSC was being 10 considered for this deal? 11 MS. SCHWARTZ: I do not know. 12 MR. SEEFER: Okay. Do you know if GSC 13 declined to do the deal? 14 MS. SCHWARTZ: I do not know that. 15 MR. SEEFER: Let me show you something else 16 first and we'll try to go in chronological order. 17 Okay. So let me show you that, and for the record that 18 is a January 11th internal to Goldman that I 19 believe says GSC is not going to do the deal. 20 (There was a brief pause in the 21 proceedings.) 22 MS. SCHWARTZ: Yeah. 23 MR. SEEFER: Have you seen that 24 before? 25 MS. SCHWARTZ: No, I have not seen this

34 1 before MR. SEEFER: Okay. And just to close it 3 out, I think I asked you this, but did you know GSC was 4 looking at potentially being the CDO manager on this 5 deal? 6 MS. SCHWARTZ: No, I did not. I knew that 7 -- I mean, as you can see from my correspondence back 8 and forth Paulson was considering multiple managers. I 9 did not know who. 10 MR. SEEFER: Right. In one of the documents 11 you wrote I think you referred to it as FEMALE SPEAKER: A beauty pageant. 13 MR. SEEFER: -- a beauty pageant or 14 something, yeah. Okay. Oh, I'm sorry. Okay. We know 15 from the documents that at least in the early time 16 period you too were I guess uncomfortable with the 17 initial collateral and only agreed to like 55 of the , but eventually you guys came to agreement on what 19 the collateral was going to be, correct? 20 MS. SCHWARTZ: Yes. 21 MR. SEEFER: Okay. 22 MS. SCHWARTZ: We suggested alternatives. 23 MR. SEEFER: All right. So this was the 24 other I was going to show you that I thought was 25 Goldman but, in fact, is GSC. Take a look at that.

35 1 The bottom part is just announcing the deal with 35 2 Goldman, and the top part, the line is obviously the 3 one I'm interested in. So my first question is simply 4 have you seen that before? 5 MS. SCHWARTZ: I have not. 6 MR. SEEFER: Okay. And I don't know if I 7 said it, but for the record it's a February 27, from Steflan to Ostrem responding to the new 9 issue announcement for the Abacus deal that says I do 10 not have to say how bad it is that you guys are pushing 11 this thing. 12 Did you ever have any discussions with Mr. 13 Steflan about this deal, by any chance? 14 MS. SCHWARTZ: Not that I recall. 15 MR. SEEFER: Okay. Never called up and said 16 what are you guys doing? 17 MS. SCHWARTZ: I don't remember, to be 18 honest. I mean, I spoke to Ed periodically. I don't 19 recall. 20 MR. SEEFER: I'm sorry. I'm trying to keep 21 the documents in chronological order. 22 MS. SCHWARTZ: Uh-huh. 23 MR. SEEFER: So down the road after the deal 24 closes and ACA does the 909 million dollar ballpark 25 transaction later on in '07 and '08 the deal obviously

36 1 goes south for the long investors. Any discussions 36 2 between you and Goldman after the deal closes and the 3 deal goes south? 4 MS. SCHWARTZ: No. In fact, I left ACA 5 about the beginning of October of MR. SEEFER: Uh-huh. 7 MS. SCHWARTZ: I do not think it -- you 8 know, I don't think probably at that point there had 9 been any credit event or, et cetera, under the deal at 10 that point. I also think unfortunately almost every 11 deal went bad. 12 MR. SEEFER: Sure. I mean MS. SCHWARTZ: So I don't think this fund 14 was particularly different from any other deal. 15 MR. SEEFER: Okay. Understanding you left 16 in October, at least the allegation in the SEC 17 complaint is that by October 24th, percent of 18 the RMBS in Abacus had been downgraded and 17 percent 19 were on negative watch. 20 Does it jog any memory bells about whether 21 you heard any -- had any discussion with Goldman about 22 those downgrades or whether you were gone by then? 23 MS. SCHWARTZ: I was definitely gone by 24 October 24th or whatever that date is. No, I do not 25 have any recollection.

37 1 MR. SEEFER: Okay. And just, I mean, 37 2 overall whether you're at ACA or gone and whether it's 3 before or after October of 2007, any discussions with 4 Goldman after the deal goes south? 5 MS. SCHWARTZ: No. 6 MR. SEEFER: Okay. Did you have any 7 discussions with the folks at IKB that invested million dollars in the deal? 9 MS. SCHWARTZ: I spoke to IKB as part of my 10 general course of business. They were long-term 11 investors in ACA deals. I do not recall any specific 12 conversations about the Abacus deal. I have met with 13 them repeatedly both in New York at conferences, in 14 their offices. 15 MR. SEEFER: Okay. Putting aside that 16 Paulson was exclusively shorting the deal, was their 17 role just as an investor in terms of selecting the 18 collateral or having a voice in the selection unusual? 19 I mean, you mentioned before that other investors, you 20 know, would comment on the collateral to be included in 21 a deal. 22 MS. SCHWARTZ: No. I mean, it may, you 23 know, have been a little bit more -- more broad at 24 first in that they looked at many, many more of the 25 securities, but even IKB commented on securities.

38 1 MR. SEEFER: Okay. I think when I looked at 38 2 the documents anyway the first mention I see of the 3 collateral I thought actually was either a Paulson 4 or a Goldman saying here's the first slug 5 of 120 securities. I can show it to you. 6 MS. SCHWARTZ: I believe it's from Goldman 7 to me. 8 MR. SEEFER: Okay. 9 MS. SCHWARTZ: So the fact is, as I said 10 before, I'm not really sure who generated that initial 11 portfolio, whether it was Paulson or Goldman or why it 12 came through to ACA. 13 MR. SEEFER: And so there's an back 14 by you guys that says -- by you guys. It might have 15 actually been you. 16 MS. SCHWARTZ: That's fine. 17 MR. SEEFER: I'm sorry. 18 MS. SCHWARTZ: That's fine. 19 MR. SEEFER: It's a term of art, where I 20 think you -- yes, where you, Laura Schwartz, says 55 of 21 the 123 we can live with, and that's the . Is 22 that -- does that mean you have this preexisting 23 universe and whatever 123 minus 55 weren't in that 24 preexisting universe that you talked about earlier? 25 MS. SCHWARTZ: Well, some of them that we

39 1 didn't like them at the recommended attachment point I 39 2 told you earlier how we could approve things at triple 3 A or double A or triple B, and here they were looking 4 at triple B, so the first exclusion here is we didn't 5 like them at the recommended attachment point, so we 6 might have approved them from a double A perspective 7 but not from the triple B perspective. 8 Then the second there are lower rated 9 tranches that are already on negative watch, so we may 10 have approved them at one point but the minute they've 11 been downgraded or so they've got kicked out of our 12 system as, you know, not up to our quality, and three, 13 there are just some names susceptible to investor 14 pushback, so a combination of lots of different things 15 made us only approve MR. SEEFER: Okay. And when you say there 17 are some names susceptible to investor pushback, what 18 is that? I mean, I know what investor pushback means, 19 but what do you -- what investor names? 20 MS. SCHWARTZ: Well, not investor names, 21 some names of the underlying deals. These weren't the 22 investors. These were the shelves and the mortgage 23 originators and servicers, and I mentioned Long Beach 24 which was the subprime arm of Washington Mutual. 25 We did have some concerns about them because

40 1 their deals were some of the first to experience, you 40 2 know, ratings downgrades, so investors didn't like 3 those names very much, and the same with Freemont. It 4 was a small, very fast growing California originator, 5 so people were concerned about that. 6 MR. SEEFER: And I've seen reference in 7 other documents to push back on New Century. Was that 8 another company that -- 9 MS. SCHWARTZ: Correct, because of MR. SEEFER: -- investors had concerns 11 about? 12 MS. SCHWARTZ: -- the growth. 13 MR. SEEFER: So when you get -- you know, 14 you're under the impression that Paulson is going to go 15 long on the equity tranche, and yet here's 123 issues 16 of which you're only comfortable with 55. Do you 17 recall having any discussion with Paulson saying why 18 would you want these, they're not good? 19 MS. SCHWARTZ: No, not really. I mean, we 20 didn't -- you know, I mean, for us we were selecting 21 the portfolios so they would supply the list, we told 22 them which we were comfortable with and we said what we 23 would do in exchange and they could take it or leave 24 it. It didn't really matter to us why they wanted 25 them.

41 1 MR. SEEFER: Was that common, that a list 41 2 would initially be provided by an investor where over 3 half of it would be rejected by you guys? 4 MS. SCHWARTZ: We didn't do that many purely 5 synthetic deals, so I'd have to go back to Colleige 6 (phonetic) and Millbrook. I mean, they were even older 7 than this. I just don't remember. You know, this has 8 all been jogged -- 9 MR. SEEFER: Sure. 10 MS. SCHWARTZ: -- because I get to see it 11 all the time. I don't recall in those deals how those 12 portfolios were created. 13 MR. SEEFER: Okay. And this -- and I 14 apologize. This may require some more remedial 15 education. Why would it make a difference, though, on 16 whether it's collateral that's simply referenced in a 17 synthetic CDO or collateral that actually exists in a 18 cash CDO? 19 MS. SCHWARTZ: Well, the beauty in a way of 20 the synthetic deals is you can look at the entire 21 universe. You don't have to go by the cash bonds. For 22 instance, if we wanted to buy -- I'm just using an 23 example. I mean, if we wanted to buy this Goldman 24 deal, this GSAP deal, for instance, and we wanted to 25 buy 10 million of it in cash, well, the tranche could

42 1 have only been 50 million dollars at time of new issue And there was just no way to ever find the 3 cash paper, whereas the beauty about a synthetic is if 4 we liked this deal we didn't have to worry about if 5 there was a cash bond available. We could write the 6 risks synthetically. 7 MR. SEEFER: I understand that, but what's 8 the difference on -- my initial question was -- 9 MS. SCHWARTZ: Portfolio selection where MR. SEEFER: Right. If you're rejecting 11 over half of the proposed collateral, and I thought 12 maybe I just misunderstood your answer. You said well, 13 this was a synthetic deal versus a cash deal. My 14 question is why does it make a difference. 15 MS. SCHWARTZ: In a synthetic -- in a cash 16 deal you could have never said I want these hundred 17 names because you could only respond to what was coming 18 out in the new issue market. You could only buy 19 securities basically as they were created and issued in 20 the new issue market. 21 So if we were doing a cash deal we would 22 have a six- to twelve-month ramp up period and we would 23 look at every new deal that was issued in the market, 24 and if we liked it we would buy it in cash and put it 25 into a warehouse for a CDO, so that's why you could

43 1 never come in and say oh, I want a portfolio of these cash names because you wouldn't be able to go get 3 them, whereas you could do that in a synthetic deal. 4 You'd never be able to find these cash bonds. 5 MR. SEEFER: Okay. Okay. Now, in the 6 letter that ACA's counsel sent us anyway -- 7 MS. SCHWARTZ: I don't think I've seen that. 8 FEMALE SPEAKER: I think it's a letter from 9 ACA's counsel to (inaudible). 10 MS. SCHWARTZ: No, I haven't seen that. 11 FEMALE SPEAKER: I'm pretty sure you won't. 12 MS. SCHWARTZ: Okay. 13 MR. SEEFER: But anyway, what I'd like you 14 to do MS. SCHWARTZ: Sorry. 16 MR. SEEFER: -- I know who Alan Roseman is, 17 but I don't know who the other people are. Can you 18 just tell me how they were involved in the Goldman 19 Abacus deal, if they were? 20 MS. SCHWARTZ: Sure. Dennis Kraft headed 21 our -- as it says, head of the ABS credit, so every 22 time a new issue deal was available in the market he 23 and his team would do the analysis. They would start 24 with looking at the seller, servicer, originator. They 25 would run stresses.

44 1 If they liked the results of the stresses 44 2 they would do a credit writeup and present it to the 3 credit committee, so he was in charge of approving or 4 sort of starting the process to approve every credit 5 that would be available to be used in our ABS CDOs. 6 Courtney Henry, she did not work on my team 7 or on Dennis's team. She worked for James Rothman in 8 the structured credit group, so they would be 9 responsible for the super-senior part. To be honest, I 10 don't know what her role was or wasn't. She was not 11 very senior. 12 MR. SEEFER: I take it given that she didn't 13 work in your group or Dennis's group she wasn't 14 involved in the portfolio selection process? 15 MS. SCHWARTZ: That's correct. 16 MR. SEEFER: Okay. 17 MS. SCHWARTZ: Sorry. Alan Roseman of 18 course was our CEO. Tracy Portnoy was the woman who 19 worked for Dennis in the ABS credit, so she would have 20 been involved in reviewing and approving credits, and 21 so not maybe in the selection of what went on, but 22 absolutely responsible for what was approved by ACA, 23 and actually there you see her name in some of the 24 s as well. 25 MR. SEEFER: Uh-huh.

45 1 MS. SCHWARTZ: Natalie Rush (phonetic) 45 2 worked for James Rothman in the structured credit area. 3 Again, wouldn't have been responsible for the 4 underlying assets in the portfolio. 5 MR. SEEFER: Okay. And Rothman's group was 6 responsible for deciding whether or not to invest in 7 the deal? 8 MS. SCHWARTZ: As a super-senior 9 counterparty, correct MR. SEEFER: Okay. 11 MS. SCHWARTZ: -- taking a risk on a 12 super-senior tranche. 13 MR. SEEFER: Okay. And I know MS. SCHWARTZ: So this document. 15 MR. SEEFER: Right, the committee that you 16 sat on. 17 MS. SCHWARTZ: Uh-huh. 18 MR. SEEFER: And understanding that Roseman 19 is the CEO, what was his involvement in this deal, if 20 you know? 21 MS. SCHWARTZ: From my perspective Alan 22 Roseman sat on what was called the commitments 23 committee, which when we wanted to do a new CDO we had 24 to present that opportunity to him and to the rest of 25 the commitments committee, and he had to sign off on

46 1 whether he thought it was an acceptable deal for ACA to 46 2 do. 3 MR. SEEFER: Okay. So -- 4 MS. SCHWARTZ: Have you seen that? 5 MR. SEEFER: Have I seen? 6 MS. SCHWARTZ: The committee. 7 MR. SEEFER: I think so. 8 MS. SCHWARTZ: Okay. 9 MR. SEEFER: I've been through a lot of 10 documents recently. 11 MS. SCHWARTZ: Uh-huh. 12 MR. SEEFER: Mr. Roseman was not involved in 13 your part of the transaction in terms of evaluating and 14 signing off on the collateral that was going to be a 15 part of the deal? 16 MS. SCHWARTZ: No, he was not on the -- that 17 would have been done, you know, on -- each underlying 18 asset went to a credit committee and it had six voting 19 members on that credit committee, but he was not on it. 20 MR. SEEFER: Okay. So let me back up and be 21 more general so again you can provide a little remedial 22 education on how ACA works. 23 You've explained that you've got the folks 24 in your group and Dennis's group that are involved in 25 evaluating the credits and what's going to be included

47 1 as reference collateral on a synthetic CDO, and then 47 2 you've got the structured credit group headed up by Mr. 3 Rothman that decides whether or not ACA is going to 4 invest in any of these deals. 5 Did I state that correctly? 6 MS. SCHWARTZ: You know, I guess we need to 7 make sort of a third distinction. I don't know if I 8 would have characterized the structured credit role as 9 an investment role. There are 950 million dollars. 10 While they were definitely taking what would be 11 considered a long position, they were using the ACA 12 financial guarantee business to do that so they 13 considered it more of an insurance product as opposed 14 to a direct kind of investment. 15 ACA in the portfolio management area, we 16 managed 30 different CDOs. You saw the whole list and 17 a lot of them had reinvestment needs, so we could buy 18 debt off of our own CDOs to put into some of those as 19 well, so there was a third way that ACA could 20 participate in the Abacus deal and we could buy some of 21 those debt tranches in a funded form as well. 22 MR. SEEFER: Okay. So explain to me what 23 the CDO manager job is other than evaluating the credit 24 and then ultimately signing off on what the collateral 25 is going to be. What does ACA do after April 26th,