Basis Yield Alpha Fund says that its $56 million securities fraud lawsuit against Goldman Sachs Group Inc. should go to trial. The Australian hedge fund contends that its securities complaint, which accuses the investment bank of inflating certain collateralized debt obligations’ value, meet the standard recently articulated by the US Supreme Court in Morrison v. National Australia Bank. Goldman, however, contends that the transactions and securities under dispute do not meet the Morrison standard.
In the Supreme Court’s ruling, The judges limited Section 10(b) of the 1934 Securities Exchange Act’s extraterritorial reach by determining that the law was applicable only to transactions involving securities that took place in the United States or were listed on US exchanges. Following the decision, a district court ordered Goldman and Basis to use Morrison for determining whether there is grounds to drop the case. Goldman submitted its motion to dismiss and noted that the securities in the CDOs were not included on any US exchange list and that the underlying agreements were subject to English law and executed in Australia.
Meantime, Basis is arguing that its case is a “quintessential” securities fraud case involving a US sales transaction. The Australian hedge fund, which invested $42 million in “Timberwolf,” an AAA-rated tranche, and $36 million in an AA-rated tranche of CDOs, maintains that the CDO assembled mortgage-backed securities in Timberwolf came from the subprime real estate market in the US and was a New York sales transaction from beginning to end. The hedge fund was forced into insolvency when after investing in Timberwolf the CDOs value dropped dramatically and the fund sustained over $50 million in losses.
Basis contends that Goldman’s effort to make the transaction an Australian one that is not subject to federal securities laws has no legal or factual basis. It argues that adopting Goldman’s theory would nullify US securities law whenever a US seller committed securities fraud when effecting the sale of a security to a foreign buyer.
Related Web Resources:
Basis Yield Alpha Fund v Goldman Sachs Complaint, Scribd
Timberwolf Lawsuit: Goldman Sachs Sued By Australian Hedge Fund Over ‘Sh–ty Deal, Huffington Post, June 9, 2009
As an institutional investor that is the victim of securities fraud, you may have grounds for an investment fraud case.