Goldman Says Basis CDO Deal Took Place In Australia

Sep 3 2010 | 12:30pm ET

Goldman Sachs has reiterated its argument that a collapsed Australian hedge fund cannot sue it in the United States, but has changed the venue where it says the troubled transaction took place.

In first seeking to have the lawsuit by Basis Capital Management tossed, Goldman argued that the collateralized debt obligation in question took place in the United Kingdom, home of Goldman Sachs International. Basis, which argues that Goldman misled it about the CDO, countered that it “was a New York sales transaction from start to finish.”

This week, Goldman, which is relying on a recent U.S. Supreme Court decision barring federal securities fraud lawsuits brought by foreign buyers of foreign securities traded abroad, replied that the deal was actually done in Australia, arguing that “the purchase and sale occurred only when both parties agreed to the terms of the transaction.” According to Goldman, Basis “does not dispute that it negotiated and agreed to the transaction in Australia.”

Basis is seeking US$1 billion in its lawsuit. The firm’s Yield Alpha Fund filed for bankruptcy three years ago, alleging that Goldman misled investors in the Timberwolf CDO—called by one Goldman executive in an internal e-mail a “shitty deal”—to get “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 Timberwolf.

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