Is John Paulson (John Paulson news) getting a free pass? A lot has been made of the fact that he is not being charged. But really how could the SEC (SEC news) charge him? I can't think of a law that proscribes what he did. The issue is Goldman Sachs (NYSE: GS) and its disclosures about a deal. But the case certainly raises issues.

Was this standard operating procedure? Is it common for the client that wants a certain customized derivative, in this case Paulson, to be able to influence closely the creation of that derivative? Or did Goldman Sachs allow him such influence because he's John Paulson. 

He maintains he worked via "arms-length transactions" and the buyers of the CDOs (CDO news) were experienced investors. This may all be true. While I'm sure that the buyers, including IKB, would have appreciated the information, it does not appear that it was Paulson's burden to inform. What will really be interesting if this goes to trial is whether Paulson will be called to testify and by whom. You could see him providing crucial color either way. 

For more:
- here's a New York Times article

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