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Goldman Sachs Unfazed By New CDO Suit, Upcoming Investigations

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According to a regulatory filing this morning, someone has yet again decided to sue Goldman Sachs over two ABACUS-esque CDO deals. Rather than get bent out of shape about it, however, the bank has remained calm and made peace with the fact that there are probably going to be a lot more of suits where that came from, in addition to other investigations into the firm's dealings, because we live in a word populated with idiot regulators and know-nothing sheepestors, with whom Goldman must regrettably co-exist.

The CDO deals, called Hudson Mezzanine Funding 1 and 2, concern $1.2 billion of subprime and other residential mortgage-backed securities, many of which were sponsored by subprime mortgage lenders including Long Beach, New Century, Fremont, Countrywide, Lehman Brothers and Bear Stearns. The suit, brought in September by Philadelphia law firm Berger & Montague on behalf of plaintiffs, also names two former senior Goldman officials, Peter L. Ostrem and Darryl K. Herrick, saying they led in the structuring and selling of the securities.

Similar to an existing lawsuit involving Goldman's Abacus CDOs, the Hudson CDO lawsuit says Goldman engaged in a "heads we win, tails you lose" exercise, failing to disclose that the securities were structured by Goldman in such a way that Goldman would profit from its own short positions in subprime mortgages. The Hudson CDOs lost value shortly after they were offered. By the end of 2007, $280 million of the securities underlying the CDOs were downgraded, and by mid-2008, the senior portions of the securities were downgraded to junk status.

Goldman said it expects to be the subject of additional litigation and regulatory and other investigations related to mortgage offerings, loan sales and CDO deals.

Goldman Sachs Faces New CDO Lawsuit [WSJ]


Goldman Faces Suit Over Timberwolf Deal

Now, Goldman Sachs may have to deal with another lawsuit from a bunch of blokes at an Australian hedge fund. Goldman has been tussling behind the scenes with lawyers from the firm, called the Basis Yield Alpha Fund, over a $100 million slice of the Goldman-sponsored Timberwolf CDO that the Aussies bought right before the shit hit the fan.