2010-04-19 17:34:37.161 GMT

By Hugh Son
April 19 (Bloomberg) — The regulator suing Goldman Sachs
Group Inc. for fraud should widen its probe to determine whether
securities backed by bailed-out insurer American International
Group Inc. were improperly created, said two lawmakers.
It is “not beyond the realm of comprehension” that
Goldman Sachs misled investors on collateralized debt
obligations apart from the one cited last week by the Securities
and Exchange Commission, Democratic Representatives Elijah
Cummings and Peter DeFazio said in a letter to be sent to SEC
Chairman Mary Schapiro. AIG, rescued by the U.S. in 2008,
insured about $6 billion of Goldman Sachs CDOs named Abacus.
“Should any of these transactions be found to include
fraudulent conduct, any resulting contractual payments from AIG-
issued credit-default swaps could be viewed as ill-gotten
gains,” Cummings and DeFazio wrote. “It is imperative that the
SEC pursue the recovery from Goldman Sachs of any fraudulently
obtained AIG payments.”
The lawmakers’ demand adds pressure on New York-based
Goldman Sachs as European politicians increase scrutiny of the
bank. Prime Minister Gordon Brown called yesterday for a probe
by the U.K. Financial Services Authority and Germany’s financial
regulator asked the SEC for details of its suit.
Goldman Sachs failed to disclose to investors of a CDO
called Abacus 2007-AC1 that hedge fund Paulson & Co. helped pick
the underlying assets and bet against the security, according to
the SEC suit. The SEC charges are “completely unfounded in law
and fact,” Goldman Sachs said on April 16.
John Nester, a spokesman for the SEC, didn’t immediately
return a call seeking comment. Mark Herr, a spokesman for New
York-based AIG, declined to comment.

Seeking Signatures

Cummings, from Maryland, and DeFazio, of Oregon, are
circulating the letter, which is dated today and hasn’t been
mailed yet, among lawmakers to add more signatures, according to
a statement from Cummings’s office. The New York Times reported
on the letter earlier today.
CDOs are investment vehicles that repackage pools of assets
such as home-loan bonds into a series of new securities with
varying risks.