John Paulson and the Housing Bubble

Paulson Made A Fortune Off Of The Housing Bubble

Paulson Made $15 Billion By Shorting The Housing Bubble

Paulson Made $15 Billion In 2007 By Shorting The Housing Bubble. According to the New York Times, “But as the Wall Street Journal reporter Gregory Zuckerman writes in ‘The Greatest Trade Ever,’ (Broadway Books, 295 pages) the financial crisis was a goldmine for a small group of investors. One of them, John Paulson, founder of Paulson & Company, a New York hedge fund, made $15 billion in 2007 by shorting the housing bubble.” [New York Times, 12/5/09]

Paulson’s Investments Made The Market More Toxic For Investors

Paulson’s CDOs Made The Market For These Investments Dangerous For Investors. According to the Daily Beast, “To try to protect themselves, the Paulson team made sure at least one of the CDOs was a ‘triggerless’ deal, or a CDO crafted to be more protective of these equity slices by making other pieces of the CDO more likely to take early hits. Paulson’s goal was to make the equity piece a bit safer, but this step made the other parts of the triggerless CDO even more dangerous for anyone with the gumption to buy them. He and Paulson didn’t think there was anything wrong with working with various bankers to create more toxic investments.” [Daily Beast, 7/14/17]

Paulson’s CDOs Tanked Endowments, Pension Plans, And Banks

Some Of The Investments In These CDOs Were Endowments And Pension Plans. According to the Daily Beast, “Some of those likely to buy the CDO slices were endowments and pension plans, not just deep-pocketed hedge funds, adding to the wariness.” [Daily Beast, 7/14/17]

State Pension Funds Trusted Paulson With Their Funds And Lost Money. According to the New York Times, “That dismal record is a far cry from nearly a decade ago, when Mr. Paulson made nearly $15 billion betting on the collapse of the housing market. Back then, state pension funds and investors around the world rushed to give him their money to manage. Even Mr. Trump became an investor with Mr. Paulson — and eventually lost money.” [New York Times, 5/1/17]

Deutsche Bank Failed To Sell All Of Paulson’s CDO Deals And Suffered $500 Million In Losses As A Result. According to the Daily Beast, “One of the biggest losers, however, wasn’t any investor on the other side. It was the very bank that worked with Paulson on many of the deals: Deutsche Bank. The big bank had failed to sell all of the CDO deals it constructed at Paulson’s behest and was stuck with chunks of toxic mortgages, suffering about $500 million of losses from these customized transactions, according to a senior executive of the German bank.” [Daily Beast, 7/14/17]

John Paulson and Fraud Lawsuit

Paulson Was Sued For Defrauding His Former Business Partner With An Investment In Luxury Car Dealership 

Paulson Was Sued For Fraud By His Former Business Partner, Fahad Ghaffar

Paulson Was Sued For Fraud By His Former Business Partner Over Failing To Follow Through On A $17 Million Investment. According to Bloomberg, “John Paulson must face a fraud claim by his former Puerto Rico business partner over a $17 million investment in a luxury car dealership, though a federal judge threw out other parts of the lawsuit against the hedge fund billionaire.” [Bloomberg, 2/5/24]

Ghaffar’s Lawsuit Asked For $50 Million In Damages From Paulson. According to Bloomberg, “Ghaffar’s September lawsuit, which asked for $50 million in damages, revealed a fractious relationship between the two men, who met in 2013 when Paulson was under contract to buy the St. Regis Bahia Beach resort.” [Bloomberg, 2/5/24]

Paulson Allegedly Misled Ghaffar About His Purchase Of A Convertible Note For Stake In A Luxury Car Dealership

Court Filings Stated That Ghaffar Invested $17 Million To Be Converted Into A 50% Equity State In Paulson’s Car Dealership. According to Page Six, “In the complaint, filed in federal court Wednesday and obtained exclusively by Page Six, plaintiff Fahad Ghaffar claims he invested $17 million into Paulson’s F40 car company in 2022 that would be converted into a 50 percent equity stake.” [Page Six, 9/6/23]

Paulson Allegedly Failed To Follow Through On A Promised Convertible Note For Stake In A Luxury Car Dealership With Ghaffar. According to Bloomberg, “US District Judge Camille L. Velez-Rive in San Juan, Puerto Rico, ruled Monday that Fahad Ghaffar could proceed with securities fraud and breach of contract claims against Paulson for allegedly failing to deliver a promised convertible note giving him a 50% stake in the dealership, which was owned by a Paulson family trust.” [Bloomberg, 2/5/24]

Ghaffar Claimed That Paulson And His Lawyers Repeatedly Failed To Produce Documentation Of The Convertible Note To Reflect His Purchased Ownership Stake In The Company. According to Page Six, “Paulson and his attorneys, however, ‘continued to misrepresent to Ghaffar that he had purchased a 50% interest in F40,’ the documents allege. The entrepreneur claims he repeatedly requested documentation of the convertible note that reflected his ownership stake, but as recently as March 23, Paulson’s attorneys ‘indicated that they are still working on the note with Paulson’s general counsel and head of tax, because the features are ‘quite intricate,’’ the filing alleges.” [Page Six, 9/6/23]

Paulson Allegedly Abruptly Fired Ghaffar And Pretended That The Terms Of The Convertible Note Had Not Been Settled

In August Of 2023, Paulson Fired Ghaffar From All Positions At The Car Dealership. According to Page Six, “Around Aug. 18, 2023, Ghaffar claims Paulson, who became famous for earning his money by shorting the housing market in 2007, emailed him to ‘remove him from all positions with F40’ despite Paulson just having confirmed Ghaffar’s role as F40’s president and CEO in an email with Hyundai de San Juan.” [Page Six, 9/6/23]

When Ghaffar Asked For Proof Confirming The Convertible Note, Paulson Acted Like The Terms Of The Convertible Note Were Not Set At The Time Of Purchase. According to Page Six, “Paulson’s email to Ghaffar, a philanthropist in Puerto Rico, prompted him to demand a letter confirming his convertible note, a short-term debt agreement that converts into equity at a future date. ‘Paulson responded with further empty promises of an instrument for ‘consideration’ as if the terms of the profits interest and conversion feature had not been set at the time of purchase,’ the documents state.” [Page Six, 9/6/23]