Wednesday, 23 July 2014
Last updated 1 hour ago
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.
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…