Goldman Sachs Wins Dismissal Of Lawsuit Alleging It Misled Investors

NEW YORK (Jonathan Stempel) - Goldman Sachs Group Inc won the dismissal of a lawsuit accusing it of causing an investor to become insolvent by fraudulently misleading it about risky debt it expected would tumble in value.

In a decision made public on Thursday, U.S. District Judge Barbara Jones in Manhattan said the plaintiff, Basis Yield Alpha Fund, failed to sufficiently show that its investment in the Timberwolf 2007-1 collateralized debt obligation was a "domestic" transaction, entitling it to sue in a U.S. court.

She nonetheless gave the Cayman Islands-based fund 30 days to file a new complaint to recover its $56 million loss. Basis had accused Goldman of securities fraud and common law fraud.

Bruce Grace, a lawyer for the plaintiff, did not immediately return a call seeking comment. Goldman spokesman Michael DuVally declined to comment.

Timberwolf was among the securities cited in a scathing U.S. Senate panel report in April that faulted Goldman (GS.N), Deutsche Bank AG (DBKGn.DE) and others for hawking debt they expected to perform poorly.

That report said Goldman kept marketing Timberwolf even after Thomas Montag, a top executive who now runs investment banking at Bank of America Corp (BAC.N), told a colleague in an email that Timberwolf was "one shitty deal" [ID:nN14231964] -- a phrase quoted in Basis' complaint and Jones' opinion.

ABACUS

Timberwolf had been marketed in the spring of 2007 as a $1 billion investment-grade product, and Basis that June bought $100 million of "triple-A" and "double-A" rated securities at 81 cents on the dollar.

But Basis said it did not know there was then an "increased urgency" at Goldman to sell the securities, reflected in the "ginormous" credits it offered sales staff, because the bank feared CDOs would plunge in value. Losses quickly mounted, and Basis began liquidating just two months after its investment.

Jones dismissed Basis' lawsuit after concluding the fund did not allege that "any purchase of sale" took place in the United States, as required under a 2010 U.S. Supreme Court decision. This was so, she said, even though some of Goldman's alleged fraudulent statements were made in New York.

The judge is also overseeing a separate fraud lawsuit by the U.S. Securities and Exchange Commission against Goldman Vice President Fabrice Tourre over his role in the sale of a CDO tied to subprime mortgages, Abacus 2007-AC1. Goldman had been a defendant in that case, but last July agreed to pay $550 million to settle with the SEC, without admitting wrongdoing.

The case is Basis Yield Alpha Fund (Master) v. Goldman Sachs Group Inc et al, U.S. District Court, Southern District of New York, No. 10-04537.

(Editing by Gerald E. McCormick and Lisa Von Ahn)

Copyright 2011 Thomson Reuters. Click for Restrictions.

Comments

[Chase Price]

05:39 AM on 07/23/2011

HP takes Goldman Sachs money.

[InYourWorld]

08:36 PM on 07/22/2011

Is this a surprise? Obama let a Goldman lobbyist work as Geitner's chief of staff, Goldman Sachs, was a heavy investor in the 2008 elections...... The WH can't bite the hand that feeds it.

[ruleoflaw66]

08:06 PM on 07/22/2011

goldman suchs

[Monk2001]

01:49 PM on 07/22/2011

It's time people villify the lawyers that represent these firms. They are more soul less then the CEO's themselves. The bought and paid for judges that rule on these issues as well.

We are oppressed. GMan could "get rid" of your entire family and get away with it. Time to wake up.

[Kalemanao]

10:42 AM on 07/22/2011

How convenient the U.S. Supreme Court has a U.S. District Court somewhere near you...?

[Patrick Shaw]

09:52 AM on 07/22/2011

A bit like saying the Nazis weren't guilty of the Holocaust because it was planned in Germany but the crimes were performed in Poland and Russia.

[Carl Caroli]

08:52 AM on 07/22/2011

They wouldn't dare open that door.

[fineartgalaxy]

07:24 AM on 07/22/2011

Is this a surprise to any of us here?

[-me-]

01:11 AM on 07/22/2011

...... "So that this nation, of the hedgefunds, by the the hedgefunds and for the hedgefunds, shall not perish from this earth"

[AtlantaIconoclast]

12:45 AM on 07/22/2011

One of the reasons Goldman has "gotten away with it" is because of Barack "Hope and Change" Obama and Eric Holder. Carl Levin submitted evidence of Goldman's dishonesty to Holder's Justice Dept, and there has been nothing but silence. Face it folks, Obama has been a cruel hoax. Just look who he has hired in his cabinet, and posts!

[Grimway]

06:19 AM on 07/22/2011

Obama saved wallstreet first. Then gave a tax break to the rich that would have expired but for him and a democratic majority. The repubs put us in the ditch and Obama makes sure you stay there. Remember ol Polosie saying she would vote for the tax break for the rich? He failed to arrest anyone for fraud. He failed to arrest anyone for torture. The repubs are worse, but thet keep Obama doing their dirty work. Bad cop, Worse cop.

[AtlantaIconoclast]

12:42 AM on 07/22/2011

Why isn't there a class action lawsuit against Government Sachs?

[Ronald Malaney]

11:43 PM on 07/21/2011

goldman fraudulently misleading judges. they are to big to mislead.

[Kye154]

11:39 PM on 07/21/2011

Wonder how much the judge got paid under the table by Goldman-Sachs? Our jutice system always favor the ones with the most money, every time.

[Tim Moore]

11:07 PM on 07/21/2011

Well, Goldman is guilty as hell and we all know it, just read any story about the Timberwolf plan and you'll come to the same conclusion. But apparently, "Basis Yield Alpha Fund" fell on their own sword by moving their HQ to the Cayman Islands, therefore is unable to sue for the reasons given by the court decision. "HA HA!"

[Ironhead498]

10:51 PM on 07/21/2011

Of course they were. All the politicians were thinking ELECTION next year CA CHING!!! I need them, I better make some phone calls.