Goldman Sachs Must Contend with Proposed Class-Action CDO Lawsuit

U.S. District Judge Victor Marrero says that Goldman Sachs Group Inc. (GS) must face a proposed class action securities case accusing it of defrauding customers that purchased specific collateralized debt obligations at the beginning of the financial crisis. The lead plaintiff, Dodona I LLC, contends that the firm created two Hudson CDOs that were backed by residential mortgage backed-securities even though Goldman knew that subprime mortgages were doing badly.

The hedge fund claims that Goldman tried to offset its prime risk, even betting that subprime mortgages and the securities constructed around them would lose value—essentially making the CDOs to lower its own subprime exposure and simultaneously shorting them at cost to investors. Dodona purchased $4 million of Hudson CDOs.

Meantime, Goldman said that the proposed class action case should be dropped and that instead, Hudson CDO claims should be made independently. The bank said that the current case has too many conflicts and differences. Judge Marrero, however, disagreed with the bank.

Marrero said he is not convinced that the differences within this case are different from any other class action securities case. He also noted that subclasses could be created later if needed.

Throughout the US, our CDO fraud lawyers represent institutional investors that have lost money stemming from the way financial firms handled their investments leading up to and during the financial crisis. Please contact The SSEK Partners Group today.

Goldman to Institute Computer Messaging Ban
In other Goldman news, the firm reportedly intends to bar traders from using computer-messaging services to better protect proprietary information. Instant messaging created by Yahoo (YHOO), Bloomberg LP, AOL Inc. (AOL), Pivot Inc. and other third-party providers will no longer be allowed. Instead, traders will only be able to communicate over Goldman approved chat systems, including Blackberry’s (BB.T) Enterprise IM and Microsoft’s (MSFT) Lync.

The firm wants to keep information from internal exchanges to be filtered and sent externally. According to the Wall Street Journal, this plan is a sign of the growing distrust of messaging-service technology and how it can make private communications about closely guarded intelligence accessible to outsiders.

This ban is to better protect data related to selling and trading securities, which is one of Goldman’s biggest moneymakers. In 2013, the firm made $15.72 billion from the selling and trading of stocks, currencies, commodities, and bonds, as well as from other trading services and commissions.

Goldman and other banks and financial firms have been in the process of reassessing their policies for electronic communications, including chat rooms, which played a big role in traders manipulating the London interbank offered rate and manipulating currency markets. Goldman, Deutsche Bank AG (DBK), Citigroup (C), and JP Morgan Chase (JPM) are just some of the banks to bar chat rooms.

Judge rules Goldman must face class-action lawsuit by investors, Reuters, January 23, 2014

Goldman Looks to Ban Some Chat Services Used by Traders, The Wall Street Journal, January 23, 2014

More Blog Posts:
FINRA NEWS: Goldman Sachs Appeals Vacating of Securities Award, Non-Customers of Brokerage Firm Can’t Compel Arbitration, & Three Governors Named To FINRA Board, Stockbroker Fraud Blog, August 21, 2013

Ex-Goldman Sachs Trader Fabrice Tourre’s Request for New Civil Trial in RMBS Fraud Case is Denied, Institutional Investor Securities Blog, January 10, 2014

Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million, Stockbroker Fraud Blog, July 30, 2010