Hedge Fund Sues Goldman Over CDO Losses

Oct 4 2010 | 2:39am ET

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.

In Depth

Related-Company Fees: Normal Industry Practice or Conflicted Compensation?

Nov 11 2015 | 4:23pm ET

Regulatory agencies as well as investors are increasingly exploring whether certain...


Ferrari Roars in Wall Street Debut

Oct 21 2015 | 4:28pm ET

Shares of supercar maker Ferrari jumped as much as 15 percent to a high of nearly...

Guest Contributor

Private Debt - What is the Opportunity?

Nov 11 2015 | 3:28pm ET

In this contributed article, Rob Allard, founding partner of Firebreak Capital...


Editor's Note

    Oct 21 2015 | 10:41am ET

    One of the most unique charity benefits in the hedge fund industry, A Leg To Stand On's (ALTSO's) Hedge Fund Rocktoberfest - NYC, raised nearly $500,000 last Thursday thanks to the generous support of major sponsors and nearly 1,400 attendees from the Tri-State finance, business and hedge fund communities. Read more…