Goldman Sachs Faces Mortgage Debt Class-Action Lawsuit Over Misleading Investors

* Plaintiffs alleged losses on $698 mln debt offering

* Underlying loans from defunct subprime lender New Century

* Goldman declines to comment (Adds details from ruling, lawyer comment, byline)

By Jonathan Stempel

Feb 3 (Reuters) - Goldman Sachs Group Inc was ordered by a federal judge to face a securities class-action lawsuit accusing it of defrauding investors about a 2006 offering of securities backed by risky mortgage loans from a now-defunct lender.

U.S. District Judge Harold Baer in Manhattan certified a class-action lawsuit by investors led by the Public Employees' Retirement System of Mississippi.

These investors claimed they lost money in the GSAMP Trust 2006-S2, a $698 million offering of certificates backed by second-lien home loans made by New Century Financial Corp, a California subprime mortgage specialist that went bankrupt in 2007.

Thursday's decision is a setback for Goldman, which had sought to force investors to bring their cases individually.

Class certification lets investors pool resources, which can cut costs, and can lead to larger recoveries than if investors are forced to sue individually.

Goldman spokesman Michael Duvally declined to comment.

The bank is one of many accused by Congress, regulators and others of having fueled the nation's housing crisis and 2008 financial crisis in part by having misled investors about the quality of mortgage debt they sold.

Goldman in 2010 agreed to pay $550 million to settle U.S. Securities and Exchange Commission fraud charges over a collateralized debt obligation it sold, Abacus 2007-AC1 CDO.


"CREATIVE CUTTING AND PASTING"

The Mississippi fund claimed the GSAMP offering documents were false and misleading, saying Goldman's boilerplate disclosures failed to reveal how New Century had ignored its own underwriting standards and used inflated appraisals.

It blamed Goldman's poor due diligence for the bank's failure to find these problems when it bought New Century's loans and packaged them into securities.

Goldman countered that class-action status was inappropriate given the wide range of certificates offered, the differences among the "highly sophisticated institutional investors" that bought the debt, and even that some investors might have had "storm warnings" about New Century's practices.

Baer rejected the defense, even faulting Goldman's "creative cutting and pasting" of a 200-page deposition to bolster its claim that the Mississippi fund was on notice of problems.

"In light of my finding that the common issues predominate, it does not seem likely questions regarding individual investor knowledge, statutes of limitation or any other issue will become unmanageable," Baer wrote.

David Wales, a partner at Bernstein Litowitz Berger & Grossmann, which was named lead counsel, declined to discuss Baer's ruling, but said the plaintiffs plan to proceed toward a possible October trial.

The case is Public Employees' Retirement System of Mississippi v. Goldman Sachs Group Inc et al, U.S. District Court, Southern District of New York, No. 09-01110. (Reporting By Jonathan Stempel in New York; Additional reporting by Alison Frankel; Editing by Phil Berlowitz)

Comments

[DrJykell]

01:58 AM on 02/09/2012

The bank is one of many accused by Congress, regulators and others of having fueled the nation's housing crisis and 2008 financial crisis in part by having misled investors about the quality of mortgage debt they sold.

It blamed Goldman's poor due diligence for the bank's failure to find these problems----They knew and then probably bought insurance on those principles which was collected thru the bail out of AIG---100 cents on the dollar..

Some percentage of debt forgivemess should be included for homeowners--or jail time for Goldman executives who admitted knowing how shady these investments were..

[hgoodguy]

09:49 AM on 02/04/2012

Stop wasting time trying to prosecute these guys! Not one will ever be indicted---They are the 1% and too well connected! Instead, make a whole new set of laws with teeth so this will never happen again! Of course, before that happens, you have to get rid of the Republican majority in Congress!

[DrJykell]

02:02 AM on 02/09/2012

There is a criminal element aloud to exist deepinside these financial institutions who are very similar to insurgents---hiding among the innocent---they nered to be exposed--How many other invetments are set up to fail for insurance purposes?

[jufrgs]

08:07 AM on 02/04/2012

Who is suing for the little people who was f***ked by Goldman and the rest of the thieves? Investments are risky and they call the borrowers stupid. It appears no one read the small print, or was the print in the paper. This is where the United States Government has let every American down that had dreams of home ownership.

[Alison Kurke]

03:58 AM on 02/04/2012

The tippy tip tip of the iceberg. Couldn't happen to a nicer bunch of guys.

[Lucas Mathers]

11:44 PM on 02/03/2012

I wonder if they'll be sued for even a 10th of what they stole. As long as they profit they'll continue to do these things.

[unionave]

11:15 PM on 02/03/2012

None of this would have happened if the S Court had not interfered with the 2000 Presidential voting . Before he even had the seat in the White House warm GWB was laying the framework for the greatest heist on America .

All home mortgages are guaranteed payment to the lenders by insurance or by the Federal government . If property prices drop the lender still has the original guaranteed loan price to collect .
With the big brokerage firms , like Goldman Sachs , buying the loans it made them the lenders that the guarantees would pay in case of default .

During the GWB era there were two huge market crashes . Over 40,000 factories closed and 14 Million more workers became jobless and homeless . While some wealthy entities became wealthier than ever .

GWB encouraged predator lending as this video demonstrates . So the question is : Shouldn't the person or persons that instigated the criminal activity be the first one incarcerated ?

http://www.youtube.com/watch?v=kNqQx7sjoS8

[l78lancer]

06:43 PM on 02/08/2012

Well stated.

[unionave]

07:15 PM on 02/08/2012

/f ! Thanks .

[irishkids1234]

10:14 PM on 02/03/2012

If there was ever an "Evil Empire" of the business world......GS is it.

[Louis Sipher]

09:22 PM on 02/03/2012

Could this be the beginning of the rise of the middle-class? Can the rich and the rest of us live the same rules again?

[ccsysglf]

08:10 AM on 02/04/2012

the ruling class is the middle. time will prove this out.. but not without a fight... people factor....

[wizeanne]

06:17 PM on 02/03/2012

It's about time!...ONE down,....many more to go! But since Gold man SACKS is a SHAREHOLDER in the PRIVATE Federal Reserve Bank....guess Ben is busy at the printing presses trying to cover GS losses!

[viper1ex19]

06:23 PM on 02/03/2012

The key word in your statement is "MANY" more before we actually start seeing some relief on the bottom of this giant totem pole made up of asses.

[mrbradw1961]

08:36 PM on 02/03/2012

But who will get the money? The homeowners kicked out due to values sunk like a rock? Probably not, just the already rich folk will get some money. All it is is moving the money around all the rich people, nothing else.

[mac2jr]

06:07 PM on 02/03/2012

Greece and the European Union should be the first in line to sue Goldman Sachs and each and every employee that knew about the 'fraudulent scam' that was pulled between Greece's American Prime Minister and Goldman Sachs.

This company appears to be dangerous to the health of the USA and most of the free-world.

[wizeanne]

06:23 PM on 02/03/2012

Isn't the NEW American Prime Minister of Greece former head of the PRIVATE "Central Bank?" or is he holding both jobs? These Robber Baron Banksters need to spend a few years in solitary confinement!

[unionave]

11:33 PM on 02/03/2012

f/f ! Goldman Sachs was involved in the 1929 market crash . And one of the reasons Glass Steagall was enacted . Goldman Sachs had Glass Steagall murdered now and Goldman Sachs is even more powerful . In 1929 they were a Wall Street brokerage firm . Today they are bankers also , holding the life savings of millions that are guaranteed by the FDIC .

[sallybutt45]

05:55 AM on 02/04/2012

Off with their heads!!! Leave them just enough money to pay for their fare home. On the subway!!

[mac2jr]

11:34 AM on 02/04/2012

I learn new things every day, had NO idea of the Goldman Sachs connections to the defeat of Glass Steagall and Goldman's part in the 1929 crash.

Seems to me that some do not ever learn from history.

This company seems to be very destructive and in 'Goldman we trust' should never be the motto....

Thanks much for the info and the leads....

[wickedtwisted2]

05:07 PM on 02/03/2012

WHAT ABOUT FREDDIE MAC AND THE DEBACLE OF THEIR REFUSING TO ALLOW HOMEOWNERS TO REFINANCE AND THEN THEY "BET" AGAINST SAME HOMEOWNERS...
SEE PROPUBLICA ARTICLE REGARDING SAME
http://www.propublica.org/article/freddy-mac-mortgage-eisinger-arnold

[knkdnsr]

08:25 PM on 02/03/2012

Freddie Mac does not set refinance rules. You can go to any mortgage company to get a refinance. If you are talking about adjusting the terms of your present mortgage like reduce the interest rate or amount owed . They can not do that since the loan was should through them to an investor. The government does not tell you that the only correction is a complete new refinance to lower the rate but add the closing costs to the balance.. but you have to be current with your payments and your loan can not be that far under water.

[ny upstate]

04:53 PM on 02/03/2012

sounds almost to good .. what about the SCOUS rulling against class-action lawsuits with the walmart case-- precedent ready, set, go?

[cakesandeggs]

04:39 PM on 02/03/2012

Prison time!!!! And not at a resort. Attica is a good place to start.

[DMAvery]

04:35 PM on 02/03/2012

GOOD! Since our gov't can't seem to do a damn thing about this robber barrons i'm glad someone's going after them.

[disc0pat]

04:58 PM on 02/03/2012

Um, don't you realize that a federal judge IS part of our government??? They are the "someone" going after them.

[ltricky]

04:34 PM on 02/03/2012

If we truely wanted to teach the banks a lesson we would all target one and pull our money out and see what happens! BUT we won't we'll all just complain till the country goes bankrupt!

[noknrc]

04:38 PM on 02/03/2012

Agreed. My family has pulled all accounts from BOA and even closed the CC accounts.
The fact is non of these too big to fail publicly held companies should have been bailed out.
They would have been sliced and diced up . Smaller banks could have invested and built some strength. private investors could have purchased some assets and open new smaller banks.

[wizeanne]

06:27 PM on 02/03/2012

Closed mine at JP's and went to credit union.

[ltricky]

09:09 PM on 02/03/2012

My family puts verry little in only what we need to cover bills than nothing_ we should all put any spare cash into metal! The best thing i ever did!