Firms Mull CDO Lawsuits Against Goldman

Apr 20 2010 | 1:18pm ET

Just days after being sued over a subprime mortgage transaction it structured for Paulson & Co., Goldman Sachs may find itself in court, as several firms weigh their legal options.

Stefan Ortseifen, the former CEO of German bank IKB Deutsche Industriebank, may call more witnesses in the wake of the U.S. Securities and Exchange Commission lawsuit against the Wall Street giant. Ortseifen is on trial accused—like Goldman—of misleading investors about the trouble facing IKB in 2007. IKB lost some US$150 million in subprime mortgage investments.

‘We are considering calling more and other people to witness in the case,” Ortseifen’s lawyer, Rainer Hamm, told Bloomberg News. He added that his client is following the Goldman case “with big interest.”

At least four other firms that ran into trouble during the subprime crisis are also following the Goldman case with interest. Both AIG and the Royal Bank of Scotland Group, which lost hundreds of millions on collateralized debt obligations like those at the center of the Goldman case, are believed to be mulling lawsuits against the firm.

AIG, which is owned by the U.S. government, lost some US$2 billion on Goldman’s Abacus CDOs, one of which is the basis of the SEC complaint. The insurer is reviewing its deals with Goldman, which led to an agreement to cancel insurance on about US$3 billion in CDOs in exchange for Goldman keeping about US$2 billion in collateral, as it considers its legal options.

Another government controlled firm, RBS, is also mulling a lawsuit, no lesser authority than British Prime Minister Gordon Brown said. RBS paid Goldman US$841 million to get out of an Abacus CDO it inherited from ABM Amro, which it acquired in 2007.

“The question is whether RBS has an action they could take against Goldman Sachs,” Brown told Bloomberg Television. “I’ve got no doubt that RBS would be investigating that at the moment.”

Germany, which owns a pair of banks affected by the Abacus CDOs, is also weighing a compensation claim against Goldman. The German Finance Ministry bailed out both Ortseifen’s IKB and the government-owned KfW development bank, both of which lost money on the Abacus CDOs.

“After checking all facts, the public domain will examine closely if there are any possibilities for compensation,” a spokeswoman for the ministry told the Associated Press.


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