Judge Won't Toss Paulson-Linked CDO Lawsuit Against Goldman

Apr 27 2012 | 4:36am ET

A New York judge has dismissed an investor in a notorious Goldman Sachs collateralized debt obligation's allegation that the bank unjustly enriched itself, but refused to junk the entire case.

New York State Supreme Court Justice Barbara Kapnick wrote that ACA, which bought millions of dollars worth of Abacus-2007-AC1 notes and insured part of the portfolio, failed to show that Goldman was unjustly enriched, accepting the bank's argument that it "lost a substantial sum of money" on the CDO.

Abacus also cost Goldman $550 million in a settlement with the Securities and Exchange Commission. The regulator, like ACA, accused the bank of misleading investors about the role of Paulson & Co. in building the portfolio, which the SEC said was structured and marketed on behalf of the hedge fund, which shorted it.

Kapnick ruled that ACA's fraudulent inducement and fraudulent concealment complaint "certainly contains a 'rational basis' to infer that Goldman Sachs intentionally misled ACA from its silence in the face of ACA's manifest detrimental reliance on its mistaken belief that Paulson was on the same side of the transaction as it was."

The judge gave Goldman 30 days to answer the remaining claims against it. ACA is seeking $120 million in damages.

Kapnick's ruling is Goldman's second legal defeat over a CDO lawsuit in as many months: In March, a federal judge allowed hedge fund Dodona I's claims against the bank stemming from the Hudson Mezzanine CDOs to proceed. Goldman also faces a lawsuit over two other CDOs, Timberwolf and Point Pleasant, filed by collapsed Australian hedge fund Basis Capital Management.


In Depth

High Time For A Cannabis Hedge Fund?

Sep 30 2014 | 7:07am ET

Launching a hedge fund is always a gamble, but Leslie Bocskor's decision to launch...

Lifestyle

Griffin Donates $1M To Rauner's Illinois Gov. Campaign

Sep 22 2014 | 9:29am ET

Hedge fund billionaire Kenneth Griffin definitely has a dog in this fight. The Citadel...

Guest Contributor

Appraisal Ratio Key To Evaluating Hedge Funds And Other New Investments

Sep 29 2014 | 3:07pm ET

As a former finance professor Peter Hecht experiences heartburn every time he hears...

 

Videos

Editor's Note

    Must Attend Hedge Fund Charity Events For October

    Sep 30 2014 | 9:29am ET

    The crisp Autumnal days of October are upon us, and so are a few of the hedge fund industry’s favorite charitable events. If you have never been to Rocktoberfest, well, you are missing out. And for a quieter evening of sipping and socializing, stop by HFC’s Wine Soiree. Read more…

 

Futures Magazine

September 2014 Cover

High frequency market making

High frequency trading is not evil, it is not a conspiracy and it really is not new; it is the natural evolution of the professional trading community making markets, providing liquidity and hopefully...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.