Goldman Sued For $1.7 B

Goldman Sachs Group Inc. (NYSE:GS) is facing a lawsuit from an Australian hedge fund for $1.07 billion, alleging that the financial giant sold risky debt that led to the hedge fund becoming insolvent.

The Australian hedge fund, Basis Yield Alpha Fund filed the lawsuit alleging negligence and breach of contract. The firm is seeking $1 billion in punitive damages and around $67 million losses that it suffered.

The lawsuit was filed by the hedge fund on Thursday in Manhattan. The Hedge Fund is filing the lawsuit after a period of about three months after a similar case was dismissed by a judge on the accounts of not being able to sue Goldman in a federal court since the investment in the collateralized debt did not qualify as a domestic transaction under the United States securities laws.

The Timberwolf transaction was also cited in the United States Senate panel report that had faulted Goldman in April, along with other banks such as Deutsche Bank AG and others for selling debts that showed no chance of giving returns. Even after Thomas Montag pointed out the fault, Goldman continued marketing the risky debt to investors. Montag is currently the Chief Operating Officer of Bank of America.

In the lawsuit filed on Thursday, Basis Yield Hedge Fund reports that it had entered about $80 million of credit default swaps that were related to Triple-A and Double-A debt of Timberwolf. The fund also invested around $12.3 million in the Triple B rated debts that were related to residential mortgages.

According to Basis Fund, these transactions helped Goldman to unload its risky investments and also profit from the fall of these debts. Goldman also allegedly offered its sales personnel huge credits for offloading the toxic inventory to unsuspecting clients. The security debts began to tumble within weeks and their value gradually came down. This led to the liquidation of Basis Yield. In less than a period of six weeks, the Timbrewolf debts lost $56.3 million.

Goldman has so far denied being at fault and refused the allegations. The company said that they acted appropriately and refute all the allegation if misleading investors.

About Goldman Sachs: The Goldman Sachs Group, Inc. is a bank holding and a financial holding company. Goldman Sachs is a global investment banking, securities and investment management company providing a range of financial services to a client base that includes corporations, financial institutions, governments and high-net-worth individuals.

Post Written By: Ed Liston Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.