No Relief For Goldman In Basis CDO Lawsuit

Jan 31 2014 | 12:18pm ET

For the second time in as many weeks, Goldman Sachs has lost its bid to get out from under a collateralized debt obligation lawsuit filed by a hedge fund.

A New York State appeals court in Manhattan yesterday upheld a trial court judge's decision to allow Basis Capital Management to pursue fraud claims against the bank. Basis, which collapsed more than six years ago, accuses Goldman of misleading it about the quality of the assets in two CDOs, Point Pleasant and Timberwolf. The Australian firm had invested US$100 million in Timberwolf alone, losing more than half of it.

Among Basis' evidence is an e-mail in which a Goldman executive called Timberwolf "one shitty deal."

Goldman won dismissal of Basis' lawsuit in federal court. But the hedge fund refiled its claims in state court, and in 2012 Judge Shirley Werner Kornreich allowed it to proceed, although she narrowed the claims significantly.

That ruling was the right one, according to the Appellate Division, saying Goldman's disclosures and disclaimers "fall well short" of covering Basis' allegations.

"If plaintiff's allegations are accepted as true, there is a 'vast gap' between the speculative picture Goldman presented to investors and the events Goldman knew had already occurred," Judge Dianne Renwick wrote.

Basis is seeking more than US$1 billion.

Last week, a federal judge refused to block a potential class-action against Goldman filed by hedge fund Dodona I, which claims similar misrepresentations about another set of Goldman CDOs.


In Depth

OmniQuest Capital: Why Funds of Hedge Funds Work

Aug 11 2016 | 4:47pm ET

There have been few sectors of the alternative investment universe under as much...

Lifestyle

Vortic: Making Great American Watches Again

Jul 25 2016 | 6:29pm ET

If you are compelled by stories of entrepreneurial vision & drive, or simply...

Guest Contributor

Old Hill Partners: Embrace Illiquidity

Aug 9 2016 | 2:39pm ET

The age-old financial concept that higher yields are the result of higher risk and...