Goldman Talks CDO Deal With Aggrieved Hedge Fund

Apr 29 2010 | 8:17pm ET

Goldman Sachs is in settlement talks with an Australian hedge fund that collapsed after losing millions on a collateralized debt obligation structured by the Wall Street giant.

Basis Capital Management, whose Yield Alpha Fund filed for bankruptcy three years ago, was burned by a CDO similar to the one at the center of the Securities and Exchange Commission’s fraud case against Goldman. Basis had invested US$100 million in the Timberwolf CDO, which a Goldman executive referred to as a “shitty deal” in documents released by a Senate committee in advance of a hearing about Goldman’s conduct this week.

Basis claims it lost US$56 million on its Timberwolf investment.

According to the Financial Times, the talks between the hedge fund and Goldman are preliminary and may not lead to a deal.

At  Tuesday’s Senate hearing, Daniel Sparks, former head of Goldman’s mortgage division, said that Tom Montag, former head of its trading unit, was referring to Goldman’s own losses on Timberwolf, and not the quality of the CDO of itself, when he called it “one shitty deal.” Another top Goldman executive called Timberwolf a deal that “will live in infamy.”


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