Goldman Loses Bid To Toss Hedge Fund CDO Lawsuit

Mar 21 2012 | 12:56pm ET

Goldman Sachs will have to defend yet another collateralized debt obligation lawsuit, a federal judge has ruled.

The bank had sought the dismissal of a would-be class action filed in 2010 by hedge fund Dodona I. But U.S. District Judge Victor Marrero decided that the hedge fund "has alleged facts supporting an inference of recklessness which is at least as compelling—if not more so—as any opposing inference."

Dodona 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. The lawsuit followed Goldman's settlement of a Securities and Exchange Commission claim over another CDO, and an Australian hedge fund's lawsuit over yet another.

"Goldman's sudden—and prescient—shift to reducing subprime risk supports the inference that it possessed some unique insight," Marrero ruled.


In Depth

Debunking Conventional Investment Wisdom

Feb 8 2017 | 3:22pm ET

Due diligence in the hedge fund world has long involved some combination of the...

Lifestyle

'Tis the Season: Wall Street Holiday Parties Back In Fashion

Dec 22 2016 | 9:23pm ET

Spending on Wall Street holiday parties has largely returned to pre-2008 levels...

Guest Contributor

The Future of Private Equity: New Opportunities, New Challenges

Feb 3 2017 | 6:41pm ET

The private equity industry’s astonishing rebound since the financial crisis has...

 

From the current issue of