A third Goldman Sachs collateralized debt obligation has produced a lawsuit—and for the second time, a hedge fund is behind it.
The hedge fund, Dodona I LLC, alleges that Goldman misled investors in a pair of CDOs, called Hudson Mezzanine, valued at $2 billion. According to Dodona, the huge drop in the Hudson CDOs' value—the hedge fund paid between 95 cents and 100 cents on the dollar in early 2007, and sold them in October for just 2.5 cents on the dollar—was entirely the result of Goldman's misconduct.
"In a classic case of 'heads we win, tails you lose,' the defendants failed to disclose to investors both that the CDOs were structured by defendants such that they were doomed to lose value," the lawsuit, filed Friday in New York federal court, alleges. What's more, Dodona claims that Goldman didn't disclose that it "would profit enormously from proprietary short positions when the CDOs did lose value."
Dodona is seeking class-action status. Goldman denies any wrongdoing.
The Dodona lawsuit follows legal action over two other Goldman-structured CDOs. The first—stemming from a CDO, called Abacus, allegedly structured and marketed on behalf of Paulson & Co. —was filed by the Securities and Exchange Commission and was settled earlier this year for $550 million. The second came in June, when collapsed Australian hedge fund Basis Capital Management sued the firm over its losses in another CDO, called Timberwolf.