• Hudson Mezzanine CDOs were among stains to bank's name
  • Plantiffs failed to prove case, judge says in decision

Goldman Sachs Group Inc. won the dismissal of a lawsuit over toxic mortgage-linked investment sales that were criticized by some members of a Senate panel investigating the 2008 financial crisis.

Investors in the collateralized debt obligations failed to show the bank structured the notes, from so-called Hudson Mezzanine Funding deals, to fail or that it hid material, nonpublic information about them, a U.S. judge ruled.

In 2010, the U.S. Senate’s Permanent Subcommittee on Investigations, then led by Democrat Carl Levin, examined whether Goldman and its competitors had inappropriately bet against clients while the subprime-mortgage market melted. The panel released e-mails related to the bank’s deals, including one of the Hudson transactions, that suggested it had.

“The CDO imploded within two years: Your clients lost; Goldman profited,” Levin said in an hearing during which he questioned Goldman Sachs Chief Executive Officer Lloyd Blankfein about the Hudson deal and other CDOs. “To go out and sell these securities to people and then bet against those same securities, it seems to me, is a fundamental conflict of interest and is -- raises a real ethical issue.”

While Goldman Sachs selected the assets in the Hudson deal, it was also the only investor buying protection against losses through the transactions, documents released by Levin’s committee showed.

Goldman Employees

The class-action suit, in which hedge fund Dodona I LLC represented more than 70 investors in $2 billion of Hudson Mezzanine Funding 2006-1 and 2006-2, had also targeted former Goldman employees Peter L. Ostrem and Darryl K. Herrick. After the pretrial sharing of potential evidence between parties, known as discovery, the plaintiffs failed to submit “any specific information” suggesting Goldman hid important facts, U.S. District Judge Victor Marrero said.

"We are pleased with the decision," said Michael DuVally, a spokesman for New York-based Goldman Sachs.

The case is Dodona I LLC v. Goldman Sachs & Co., 10-cv-07497, U.S. District Court, Southern District of New York (Manhattan).

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