Goldman Sachs Group Inc. (GS) won dismissal of a suit over $450 million in residential mortgage-backed securities, with a New York judge saying that the firms that bought the bonds should have done more research beforehand.
State Supreme Court Justice Charles Ramos dismissed the claims against Goldman Sachs today, saying the investors only reviewed data presented in offering documents for the securities and never asked to review files for the underlying loans.
“The true nature of the risk being assumed could, admittedly, have been ascertained from reviewing these loan files and plaintiffs never asked for them,” Ramos wrote.
Goldman Sachs was among financial firms including Bank of America Corp. and JPMorgan Chase & Co. sued over more than $1.8 billion in mortgage-backed securities in 2012 by Phoenix Light SF Ltd., a company based in Dublin that inherited claims from six legal entities “that collapsed or nearly collapsed,” according to court filings.
The entities include WestLB, the 180-year-old German state-owned lender, based in Dusseldorf, that ceased operations in 2012 as part of European Union conditions tied to a 17 billion-euro ($23 billion) bailout after the 2008 financial crisis, according to a complaint.
Pools of home loans securitized into bonds were a central part of the housing bubble that helped send the U.S. into the worst recession since the 1930s. The housing market collapsed, and the market for the securities evaporated.
The plaintiffs said Goldman Sachs didn’t share the files for the loans underlying the securities. Ramos said there were no allegations that that they asked for them and Goldman Sachs denied access.
“It does not matter if the failure to seek this information was because of blind faith in the process of origination and/or securitization, or if it was attributable to the desire to quickly get on board of what the investors thought was a profitable bandwagon,” the judge wrote. “The obligation of a sophisticated investor to inquire cannot be merely excused.”
Nathan Lindell, an attorney with Robbins Geller Rudman & Dowd LLP representing the plaintiffs in the case, didn’t immediately respond to a phone message seeking comment on the ruling.
Michael DuVally, a spokesman for Goldman Sachs, didn’t immediately respond to an e-mail seeking comment on the ruling.
The case is Phoenix Light SF Ltd. v. Goldman Sachs Group Inc., 652356/2013, New York State Supreme Court, New York County (Manhattan).
To contact the reporter on this story: Chris Dolmetsch in New York State Supreme Court in Manhattan at email@example.com.