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Goldman Must Face Fraud Claims by ACA Financial, Judge Rules

April 25 (Bloomberg) -- Goldman Sachs Group Inc. must face fraud claims brought by ACA Financial Guaranty Corp. over a mortgage-based investment that led to a settlement with the U.S. Securities and Exchange Commission.

ACA Financial sued Goldman Sachs in New York State Supreme Court in January 2011, accusing the company of fraudulent inducement, fraudulent concealment and unjust enrichment in connection with a collateralized debt obligation known as Abacus.

Justice Barbara Kapnick threw out the unjust enrichment claim in an order dated yesterday, saying that the plaintiffs failed to establish that Goldman Sachs wrongly benefited at ACA Financial’s expense. Kapnick let stand two fraud claims in the complaint.

“Justice Kapnick vindicated ACA’s position, and rejected all of Goldman’s arguments opposing ACA’s fraud claims,” Marc Kasowitz, a lawyer for New York-based ACA, said in an e-mailed statement. “Full discovery in this case will now proceed.”

ACA seeks $120 million in compensation and punitive damages for the fraud claims, according to the statement.

Michael DuVally, a spokesman for New York-based Goldman Sachs, declined to comment on yesterday’s ruling.

Goldman Sachs agreed in July 2010 to pay $550 million, the largest penalty ever assessed by the SEC against a Wall Street firm, to settle allegations against it involving the Abacus deal.

The case is ACA Financial v. Goldman Sachs & Co., 650027/2011, New York state Supreme Court (Manhattan).

To contact the reporter on this story: Chris Dolmetsch in New York at cdolmetsch@bloomberg.net

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

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