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Goldman, Blankfein Win Dismissal of Investor MBS Lawsuit

Goldman Sachs Group Inc. (GS) and Chief Executive Officer Lloyd Blankfein won dismissal of a suit in which investors said the bank knew mortgage-backed securities it sponsored didn’t comply with underwriting standards.

U.S. District Judge William Pauley in New York said in a ruling today that plaintiffs’ allegations were “conclusory” and lacked specifics.

The plaintiffs in the so-called consolidated derivative suit include Michael Brautigam and the Retirement Relief System of the City of Birmingham, Alabama. Those also named as defendants included current and former Goldman Sachs executives.

The plaintiffs said Goldman Sachs breached its fiduciary duty when it accepted Troubled Asset Relief Program, or TARP, funds then failed to comply with conditions for accepting it.

Goldman Sachs sponsored $162 billion worth of residential mortgage-backed securities, knowing that the loans underlying the securities were troubled, the plaintiffs claimed. The bank then sold $1.1 billion worth of the securities to Fannie Mae and Freddie Mac, knowing the underlying loans were troubled.

Goldman Sachs was also accused of knowing the securities didn’t comply with underwriting standards because the banking and securities firm had conducted due diligence on the loans.

Michael DuVally, a spokesman for Goldman Sachs, declined to comment on the ruling.

Goldman Sachs fell 35 cents to $103.26 at 4:15 p.m. in New York Stock Exchange composite trading.

The case is In Re. Goldman Sachs Mortgage Servicing Shareholder Derivative Litigation, 1:11-cv-04544, Southern District of New York (Manhattan).

To contact the reporter on this story: Patricia Hurtado in New York at pathurtado@bloomberg.net.

To contact the editor responsible for this story: Andrew Dunn at adunn8@bloomberg.net.

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