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Goldman Fails to Dismiss Basis Capital’s Timberwolf Suit

Goldman Sachs Group Inc. (GS) lost a bid for dismissal of a lawsuit by Australian hedge fund Basis Capital Funds Management Ltd. over the sale of securities known as Timberwolf and Point Pleasant.

New York Supreme Court Judge Shirley Werner Kornreich in an order yesterday denied Goldman Sachs’s request to throw out Basis Capital’s fraud, negligent misrepresentation, unjust enrichment and recession claims. The judge agreed to dismiss the breach of contract claim and a claim for breach of implied covenant of good faith and fair dealing.

The suit, filed a year ago in Manhattan by Basis Capital’s Basis Yield Alpha Fund, accuses New York-based Goldman Sachs of “knowingly making materially false and misleading statements and omissions” in connection with the securities.

The claims relate to Point Pleasant, a collateralized debt obligation based on subprime residential home mortgages, and two credit default swaps that referenced securities from a similar CDO known as Timberwolf.

Basis Capital accuses Goldman Sachs of marketing new CDO investments in early 2007, after the company had already determined that the value of securities in that market “would likely go into sharp decline in the near future,” and used the new CDOs as a vehicle to short the market.

Basis Capital is seeking to recover the $67 million in compensatory damages and $1 billion in punitive damages, according to the lawsuit.

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

The case is Basis Yield Alpha Fund (Master), 652996/2011, New York State Supreme Court (Manhattan).

To contact the reporter on this story: Edvard Pettersson in Los Angeles at

To contact the editor responsible for this story: Michael Hytha at

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