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2010-06-17 14:00:32
An Australian hedge-fund manager filed a lawsuit seeking more than $1 billion in damages from Goldman Sachs Group Inc., accusing the Wall Street firm of fraudulently selling a "now notorious" financial instrument called Timberwolf.
The collateralized debt obligation collapsed when housing prices tumbled in 2007, resulting in steep losses to the $78 million invested by Basis Capital, the hedge-fund manager. The lawsuit, filed Wednesday in U.S. District Court for the Southern District of New York, seeks at least $56 million in damages related to Goldman's alleged "false representations" and more than $1 billion in punitive damages.
"Goldman was pressuring investors to take the risk of toxic securities off its books with knowingly false sales pitches," said Eric L. Lewis, a partner at law firm Baach Robinson & Lewis who is representing Basis. The hedge fund that bought pieces of Timberwolf had to be liquidated in late 2007 after its heavy losses from bets on the subprime-mortgage market.
Michael DuVally, a Goldman spokesman, said the suit "is a misguided attempt by Basis, a hedge fund that was one of the world's most experienced CDO investors, to shift its investment losses to Goldman Sachs." The hedge-fund firm "made its investment at market levels—levels that it deemed attractive," Mr. DuVally added.
In addition to the suit, the Securities and Exchange Commission is probing a number of mortgage-related deals created by Goldman, Morgan Stanley and other major Wall Surveillance&Security 1/3inch sony ccd in china Street firms. In recent weeks, Goldman was asked for more information about a collateralized debt obligation called Hudson Mezzanine Funding, according to people familiar with the matter. Details of the Hudson deal have been previously reported by The Wall Street Journal and mentioned in Congressional hearings.
Last month, The Wall Street Journal reported that David Mapley, a former outside director for the Basis hedge fund that bought into Timberwolf, called an SEC lawyer after the investment was made to complain about it.
It isn't clear how the information about Timberwolf figured into the SEC's investigation of Goldman's mortgage dealings. That probe led to April's civil-fraud lawsuit against the New York company by the SEC.
The SEC's suit accuses Goldman and trader Fabrice Tourre of selling a CDO called Abacus 2007-AC1 without disclosing to the two other parties to the investment that hedge-fund firm Paulson & Co. helped to pick some of the underlying mortgage securities and was betting on the financial instrument's decline.
"Abacus is now the template that this Timberwolf lawsuit and any others that come in the future will follow," said Anthony Sabino, a law professor at St. John's University.
