Goldman Sachs Group Inc. and an Australian hedge fund have agreed to end a lawsuit over the sale of mortgage-linked securities, including an investment known as "Timberwolf" that became a symbol of the financial crisis after it was cited in internal emails released by U.S. lawmakers.
Terms of the agreement weren't detailed in a court filing Friday in state court in Manhattan.
Basis Capital's Basis Yield Alpha Fund sued Goldman Sachs in 2010 for making what hedge fund managers called false and misleading statements in connection with the sale of Timberwolf and another investment known as "Point Pleasant." Both were collateralized debt obligations, or CDOs, a type of security stuffed with mortgages and their derivatives that caused billions in losses during the 2008 financial crisis.
The fund sought more than $67 million it said it lost in the deal and $1 billion in punitive damages.
In an April 2011 report, the U.S. Senate said Goldman Sachs tried to manipulate prices of derivatives linked to subprime home loans in May 2007 for its own benefit. That report said Goldman kept marketing Timberwolf even after Thomas Montag, who was a Goldman Sachs executive in 2007, described Timberwolf in an email as "one s* deal."
Michael Duvally, a spokesman for New York-based Goldman Sachs, and Bruce Grace, a lawyer for Basis Yield Alpha Fund, didn't immediately respond to requests for comment on the settlement.
In its complaint, Basis said Goldman Sachs falsely claimed in June 2007 that the market for investments such as Timberwolf had stabilized. The fund claimed it was forced into insolvency after buying the mortgage-linked securities.
"Goldman was pressuring investors to take the risk of toxic securities off its books with knowingly false sales pitches," Eric Lewis, a lawyer for the fund, said when the suit was filed. "Goldman should be called to account."
"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 response.
A federal judge threw out the case in 2010, and the fund then sued Goldman in state court. A state judge denied the bank's bid to dismiss the case in October 2012, a ruling that was upheld by an appeals court in January 2014.
The case is Basis Yield Alpha Fund (Master), 652996/2011, New York State Supreme Court (Manhattan).
Business on 06/15/2016