Goldman Sachs Loses Bid to End Prudential Fraud Lawsuit

Goldman Sachs Group Inc. (GS) failed to win dismissal of a lawsuit claiming it engaged in fraud and racketeering in selling $375 million of residential mortgage- backed securities to Prudential Financial Inc. (PRU)

U.S. District Judge Susan Wigenton in Newark, New Jersey, ruled today that Prudential, the second-largest U.S. life insurer, sufficiently pleaded its claims that Goldman misrepresented its underwriting standards and practices. Goldman will have other opportunities to seek dismissal of the lawsuit.

Prudential, based in Newark, bought securities from Goldman in 16 deals, according to Wigenton’s opinion.

Goldman, based in New York, asked the judge to dismiss the complaint, arguing that Prudential didn’t adequately state its case for fraud and racketeering.

Wigenton disagreed, ruling that Prudential “adequately pled a cause of action for fraud” and sufficiently stated its case that Goldman Sachs violated New Jersey’s civil anti- racketeering statute.

The purchases were made from February 2004 to December 2008, according to the opinion.

The parties have not yet engaged in the pretrial exchange of evidence.

Michael DuVally, a spokesman for Goldman Sachs, and Scot Hoffman, a Prudential spokesman, declined to comment on the ruling.

Goldman Sachs also argued that New York law, not New Jersey law, applies to the fraud and RICO claims. Wigenton ruled that “determining a choice of law at this stage is premature” regarding fraud claims. She made a similar ruling with regard to the Goldman Sachs motion on the racketeering claim.

The case is Prudential Insurance Co. v. Goldman Sachs & Company, 2:12-cv-06590, U.S. District Court, District of New Jersey (Newark).

To contact the reporter on this story: David Voreacos in Newark, New Jersey at dvoreacos@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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