Goldman Sachs Group Inc. will have to defend in court against an investment insurer’s claims that it lied about billionaire John Paulson’s position in a security known as Abacus.
An appeals court in Manhattan ruled Tuesday ACA Financial Guaranty Corp. can pursue the lawsuit because its claim meets all the state law requirements for fraud allegations.
ACA, a New York-based investment insurer, claims Goldman tricked it into backing the collateralized debt obligation known as Abacus by saying Paulson and his hedge fund had bet the portfolio would succeed when in fact they were wagering it would fail. ACA sued Goldman Sachs for $120 million in damages in 2011 and added Paulson as a defendant in 2013.
ACA’s suit “contains a rational basis for inferring that the alleged misrepresentations were made intentionally,” the appeals court said Tuesday.
Michael DuVally, a spokesman for New York-based Goldman Sachs, declined to comment on the ruling.
The ruling giving a go-ahead to a trial is the latest in the back-and-forth battle between Goldman Sachs and ACA over the Abacus portfolio.
The Manhattan appeals court in May 2013 overturned a state court judge who first allowed the fraud suit to proceed, rejecting the argument that the insurer had failed to show that it relied on statements made by the bank about Paulson’s role. The state’s top court in Albany revived the lawsuit in May, ordering the lower appeals court to take a second look.
Goldman Sachs in July 2010 won court approval of a $550 million settlement with the U.S. Securities and Exchange Commission over claims that it misled investors in the Abacus CDO. According to the SEC, the bank failed to disclose Paulson’s role in selecting underlying securities or that the Paulson & Co. founder had taken a short position against the CDO.
The case is ACA Financial Guaranty Corp. v. Goldman Sachs & Co., 650027-2011, New York State Supreme Court (Manhattan).