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

Q&A: Filippo Pignatti Morano On The Ultimate Alternative Investment...Classic Cars

Jan 29 2015 | 12:37pm ET

In 2011, Filippo Pignatti Morano launched a fund to invest in classic cars. FINalternatives...

Lifestyle

Looking For A Hedge Fund Manager? Try Davos

Jan 28 2015 | 8:48am ET

Davos, Switzerland seems to have become the hedge fund capital of the world—at...

Guest Contributor

From Switzerland With Love: Some Hard Truths About Central Banks And Risk

Jan 23 2015 | 7:54am ET

In the wake of the Swiss National Bank uncoupling the country’s currency from...

 

Editor's Note