Goldman Says Supreme Court Bars Hedge Fund Lawsuit

Aug 5 2010 | 12:54pm ET

Goldman Sachs has asked a New York federal court to toss a collateralized debt obligation lawsuit against it, citing a recent U.S. Supreme Court decision.

The Wall Street giant argues that the $1 billion lawsuit, filed by collapsed Australian hedge fund Basis Capital, is barred by the court’s June ruling in Morrison v. National Australia Bank that forbids federal securities fraud lawsuits in the U.S. by foreign buyers of foreign securities traded abroad. According to Goldman, the transaction in question, which one Goldman executive called a “shitty deal” in an internal e-mail, took place in the United Kingdom.

“This litigation presents a contract dispute between two foreign entities, executed abroad and governed by English law,” Goldman said in a Monday filing.

Not so, according to Basis. A lawyer for the Basis Yield Alpha Fund, which filed for bankruptcy three years ago, told Bloomberg News that the CDO and its credit-default swaps were derivatives of U.S. securities, meaning that the actual location of the transaction was New York, with Goldman Sachs International merely acting as an agent of the U.S.-based parent company.

Basis filed suit against Goldman in June after settlement talks between the two sides failed to produce an agreement. The hedge fund argued that Goldman misled investors in the CDOs in an effort to “take the risk of toxic securities off its books with knowingly false sales pitches.” Basis said it lost US$56 million of its US$78 million investment.


In Depth

Bob Doll's Ten Market Predictions For 2016

Jan 7 2016 | 9:37pm ET

Well-known market strategist Robert Doll has published his annual list of ten predictions...

Lifestyle

Citadel's Ken Griffin Donates $40M To New York's Museum of Modern Art

Dec 22 2015 | 9:23pm ET

Citadel founder Ken Griffin has donated $40 million to New York’s Museum of Modern...

Guest Contributor

Hedge Fund Marketing - Making the Most of Your Salesperson

Jan 20 2016 | 8:11pm ET

In this contributed article, Bruce Frumerman of Frumerman & Nemeth takes a close...