Goldman Sachs Cited for Misconduct in Selling Collateralized Debt Obligations

A report by the Senate Permanent Subcommittee on Investigations (the "Report") alleges that Goldman Sachs misled its clients when it sold collateralized debt obligations ("CDOs"). The Report also states that Goldman's CDO activities were fraught with "multiple conflicts of interest." Three of the CDOs that the Senate Report references are: Timberwolf I, Hudson Mezzanine 2006-1, and Anderson Mezzanine 2007-1. This misconduct rises far above simple stockbroker negligence, as it appears to reflect a high-level lack of concern for legal obligations owed to investors.

The Report states that after issuing Timberwolf in March 2007, Goldman shorted (i.e., bet against) approximately 36 percent of the assets underlying Timberwolf. According to the Report, although Goldman's internal valuations showed that Timberwolf's value was continuing to fall, Goldman represented to one prospective buyer that a 60 percent return could be expected. The Senate Report further claims that Goldman sold Timberwolf to one client at approximately 78 cents on the dollar, when Goldman internally valued the securities purchased at only 55 cents on the dollar.

Hudson Mezzanine 2006-1 ("Hudson") was issued in December 2006. According to the Report, although Goldman had bet heavily against Hudson, Goldman told investors that it had "aligned incentives" with investors. The Report called that representation "misleading" because Goldman's $6 million investment in Hudson was outweighed heavily by Goldman's $2 billion short position in the same security. The Report claims that Goldman made a $1.35 billion profit from Hudson at the expense of its clients.

The Report alleges that Goldman engaged in similar practices with regard to Anderson Mezzanine 2007-1 ("Anderson"). The Senate Report alleges that Goldman bet that 40 percent of the assets underlying Anderson would decline in value, but did not disclose that to investors. The Report further claims that Goldman expressed reservations about the quality of Anderson's underlying subprime mortgages, but did not disclose those reservations to investors. According to the Report, investors in Anderson ultimately lost virtually their entire investments.

If you have suffered losses in conjunction with any of the foregoing CDO products issued by Goldman, or any other financial instruments issued, sold, or recommended by Goldman, you may contact the attorneys at Dimond Kaplan & Rothstein, P.A. for a free case evaluation.

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