Goldman faces USD 1 bn suit

An Oz hedge fund manager has filed a lawsuit seeking more than $1 billion in damages from Goldman.

Australian hedge fund manager Basis Capital has filed a lawsuit seeking more than USD 1 billion in damages from Goldman Sachs,accusing the firm of fraudulently selling it a “now notorious” financial instrument called Timberwolf,says a media report.

The collateralised debt obligation collapsed when housing prices tumbled in 2007,resulting in steep losses for Basis Capital,which had invested USD 78 million in Timberwolf,The Wall Street Journal reported.

Citing a lawsuit filed on Wednesday in the US District Court for the Southern District of New York,the report said Basis Capital is seeking at least USD 56 million in damages related to Goldman’s alleged “false representations” and more than USD 1 billion in punitive damages.

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“Goldman was pressuring investors to take the risk of toxic securities off its books with knowingly false sales pitches,” the report quoted Eric L Lewis,a partner at law firm Baach Robinson & Lewis,which is representing Basis,as saying.

The hedge fund had to be liquidated in late 2007 after suffering heavy losses on its bets on the subprime mortgage market,the report noted.

Goldman spokesman Michael DuVally said the suit “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 hedge-fund firm “made its investment at market levelslevels that it deemed attractive,” DuVally added.

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In addition to the latest suit filed by Basis Capital,US markets regulator Securities and Exchange Commission is probing a number of mortgage-related deals created by Goldman.

In April,SEC had filed a civil fraud charges against Goldman,which allegedly caused a loss of USD 1 billion for

investors by misrepresenting facts about a financial product tied to subprime mortgage-related products.