Goldman Sachs Wins Appeal of Ruling Dismissing CDO Suit
Goldman Sachs Group Inc. (GS) won an appeal of a ruling that dismissed a suit against it by Landesbank Baden-Wuerttemberg over losses on $37 million in collateralized debt obligations.
The federal appeals court in New York today upheld a ruling by U.S. District Judge William Pauley III, who threw the case out in September. Pauley ruled that the bank’s complaint didn’t include sufficient fraud allegations against Goldman Sachs and against Los Angeles-based TCW Asset Management Co., which manages collateral for asset-backed securities.
LBBW, based in Stuttgart, Germany, sued in October 2010 over its losses on Davis Square, a CDO collateralized by residential mortgage-backed securities that was underwritten by Goldman Sachs in 2006.
“The complaint in this case does not ascribe to Goldman or TCW any particular motive for committing fraud beyond a general profit motive common to all corporations, which does not suffice,” a three-judge panel of the appeals court in Manhattan said in an unsigned order.
Goldman Sachs, based in New York, and TCW sold the Davis Square securities to institutional investors, marketing them as a $2 billion “High Grade Structured Product CDO” backed by investment-grade mortgage-backed securities, Pauley said in his opinion. LBBW bought two notes totaling $37 million.
A phone call to an LBBW spokesman, Alexander Braun, wasn’t immediately returned.
The case is Landesbank Baden-Wurttemberg v. Goldman Sachs, 1:10-cv-07549, U.S. District Court, Southern District of New York (Manhattan). The appeal is Landesbank Baden-Wurttemberg v. Goldman, Sachs & Co., 11-44432, U.S. Court of Appeals for the Second Circuit (Manhattan).
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