ACA Financial Guaranty Corp claimed Goldman and the hedge fund headed by John Paulson tricked it into insuring the CDO, which was tied to subprime mortgage securities.
A filing in New York state court on Wednesday discontinued the case with prejudice against Goldman and Paulson & Co. The terms of the settlement were not made public.
In the $120 million lawsuit, ACA claimed it was deceived into believing Paulson & Co would hold Abacus long-term. Instead, the fund helped select the assets and took a short position, betting the underlying mortgages would fail, the lawsuit said.
The insurer claimed Abacus was designed so that Paulson could reap "huge profits" and Goldman "huge fees."
Michael DuVally, a spokesman for Goldman, declined to comment. A spokesman for Paulson & Co had no immediate comment. ACA Financial did not return a call seeking comment
Goldman Sachs settled with the U.S. Securities and Exchange Commission in 2010 over claims it misled investors in Abacus, without admitting wrongdoing.
Abacus was featured in a 2011 report by the U.S. Senate Permanent Subcommittee on Investigations. The report noted that three major investors together lost about $1 billion from their investments, while Paulson's hedge fund profited by about the same amount.
The case is ACA Financial Guaranty Corp v Goldman Sachs & Co, 650027/2011, New York state Supreme Court (New York County).
(Reporting By Karen Freifeld; Editing by Andrew Hay)
By Karen Freifeld
