Goldman sued over notorious deal

Goldman Sachs Group Inc. is being
sued by Basis Capital, an Australian hedge fund company that lost money in
mortgage-linked securities, said Eric Lewis, the lawyer for Basis Capital’s
Basis Yield Alpha Fund.

A lawsuit in which Basis Capital
seeks more than $1 billion in damages has been filed in federal court in New
York.

The suit is over Goldman Sach’s
sale of the “now notorious Timberwolf collateralized debt obligation,” Basis
said in its statement.

“Goldman was pressuring investors
to take the risk of toxic securities off its books with knowingly false sales
pitches,” Lewis said in the statement “Goldman should be called to account.”

The U.S. Securities and Exchange
Commission sued Goldman Sachs on 16 April, alleging fraud tied to a CDO known
as Abacus 2007-AC1. Later that month, U.S. Senate lawmakers released internal
Goldman Sachs e-mails in which Thomas Montag, the former head of sales and
trading in the Americas at Goldman Sachs, called the Timberwolf Ltd. CDO “one
shi**y deal.”

In its securities-fraud complaint,
Basis said that this e-mail was sent in the same week that it was closing its
deal with Goldman Sachs to purchase exposure to Timberwolf through credit
default swaps.

 “The lawsuit is a misguided attempt by Basis,
a hedge fund that was one of the world’s most experienced CDO investors, to
shift its investment losses to Goldman Sachs,” the investment bank said in a
statement.

In its lawsuit, Basis, which
invested $78 million in Timberwolf, said Goldman Sachs falsely claimed in June
2007 that the market for securities such as Timberwolf had stabilized and that
the investment was a “good entry point” into the market.

“All of these representations were
knowingly false,” Basis said in its statement.

Goldman Sachs denied that it
cheated Basis.

“At the time of the Timberwolf
transaction, Basis specifically stated that it would not place any reliance on
Goldman Sachs, and this decision formed part of the agreement Basis signed,”
the bank said in its statement.

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