Goldman Sachs, Liberty Mutual Continue Dealings Amid Lawsuit

Goldman Sachs Group Inc., the most profitable Wall Street firm, and Liberty Mutual Insurance Co. continue to do business together even as the insurer sues the bank for securities fraud.

“They’re really smart and good people,” Edmund “Ted” Kelly, chief executive officer of Boston-based Liberty Mutual, said yesterday in an interview. “We just have some differences.”

Goldman Sachs misled investors in 2007 when it sold Fannie Mae preferred shares and bet against the U.S. mortgage market, according to a July 8 complaint by Liberty Mutual. The lawsuit is without merit and Goldman Sachs “will contest it vigorously,” spokesman Michael DuVally said at the time. He declined to comment today.

Liberty Mutual’s lawsuit came after New York-based Goldman Sachs was criticized in Congress and sued by the U.S. Securities and Exchange Commission for transactions tied to the mortgage market. The Fannie Mae shares that Goldman Sachs helped sell in 2007 were “virtually worthless” the next year when the mortgage-financing firm fell into government conservatorship, Liberty Mutual said in the lawsuit.

Kelly didn’t elaborate on the business Liberty Mutual does with the bank. He declined to comment on the lawsuit, which was filed in U.S. District Court in Boston and transferred in December to New York.

Goldman Sachs agreed in July to pay $550 million and change its business practices to settle the SEC’s claim that the bank sold a collateralized debt obligation without disclosing that a hedge fund helped pick underlying securities and bet against the vehicles.

The case is Liberty Mutual v. Goldman Sachs, 10-cv-09184, U.S. District Court, Southern District of New York.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net.

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