Tuesday 23 July 2019

Goldman case may spark new lawsuits

Goldman Sachs, which has offices in London, has been accused of defrauding investors
Goldman Sachs, which has offices in London, has been accused of defrauding investors

The fraud charges against Goldman Sachs that rocked financial markets will kick off a new era of litigation that could entangle the investment banking giant and others for years to come, experts say.

The charges against Goldman relate to a complex investment tied to the performance of pools of risky mortgages.

In a complaint filed on Friday, the US Securities and Exchange Commission claimed Goldman marketed the package to investors without disclosing a major conflict of interest - that the pools were picked by another client, a prominent hedge fund that was betting that the housing bubble would burst.

Goldman said the charges were "unfounded in law and fact" and in a written response to the allegations, said it had provided "extensive disclosure" to investors and that the largest investor had selected the portfolio -- not the hedge fund client.

Goldman said it lost £59 million on the deal.

But that does not contradict the SEC complaint, which says the largest investor selected the mortgage investments from a list provided by the hedge fund, and the fact that Goldman lost money has no impact on the fraud charges.

The charges will unleash a torrent of lawsuits, and probably signal that the US government is prepared to file more lawsuits related to the overheated market that preceded the financial crisis, experts said.

"This is just the tip of the iceberg," said James Hackney, a professor at Northeastern University School of Law.

"There are a lot of folks out there in different deals who played similar roles, and once it starts building steam, plaintiffs' lawyers will figure out this is where the money is and there should be a lot of action."

PA Media

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