Feb 3 (Reuters) - Goldman Sachs Group Inc was ordered
by a federal judge to face a securities class-action lawsuit
accusing it of defrauding investors about a 2006 offering of
securities backed by risky mortgage loans from a now-defunct
lender.
U.S. District Judge Harold Baer in Manhattan certified a
class-action lawsuit by investors led by the Public Employees'
Retirement System of Mississippi.
These investors claimed they lost money in the GSAMP Trust
2006-S2, a $698 million offering of certificates backed by
second-lien home loans made by New Century Financial Corp, a
California subprime mortgage specialist that went bankrupt in
2007.
Thursday's decision is a setback for Goldman, which had
sought to force investors to bring their cases individually.
Class certification lets investors pool resources, which can
cut costs, and can lead to larger recoveries than if investors
are forced to sue individually.
Goldman spokesman Michael Duvally declined to comment.
The bank is one of many accused by Congress, regulators and
others of having fueled the nation's housing crisis and 2008
financial crisis in part by having misled investors about the
quality of mortgage debt they sold.
Goldman in 2010 agreed to pay $550 million to settle U.S.
Securities and Exchange Commission fraud charges over a
collateralized debt obligation it sold, Abacus 2007-AC1 CDO.
"CREATIVE CUTTING AND PASTING"
The Mississippi fund claimed the GSAMP offering documents
were false and misleading, saying Goldman's boilerplate
disclosures failed to reveal how New Century had ignored its own
underwriting standards and used inflated appraisals.
It blamed Goldman's poor due diligence for the bank's
failure to find these problems when it bought New Century's
loans and packaged them into securities.
Goldman countered that class-action status was inappropriate
given the wide range of certificates offered, the differences
among the "highly sophisticated institutional investors" that
bought the debt, and even that some investors might have had
"storm warnings" about New Century's practices.
Baer rejected the defense, even faulting Goldman's "creative
cutting and pasting" of a 200-page deposition to bolster its
claim that the Mississippi fund was on notice of problems.
"In light of my finding that the common issues predominate,
it does not seem likely questions regarding individual investor
knowledge, statutes of limitation or any other issue will become
unmanageable," Baer wrote.
David Wales, a partner at Bernstein Litowitz Berger &
Grossmann, which was named lead counsel, declined to discuss
Baer's ruling, but said the plaintiffs plan to proceed toward a
possible October trial.
The case is Public Employees' Retirement System of
Mississippi v. Goldman Sachs Group Inc et al, U.S. District
Court, Southern District of New York, No. 09-01110.
For Public Employees' Retirement System of Mississippi:
David Lloyd Wales of Bernstein Litowitz Berger & Grossmann.
For Goldman Sachs: Lawrence Thomas Gresser of Cohen & Gresser
and Richard Howard Klapper of Sullivan & Cromwell.
(Reporting By Jonathan Stempel; Additional reporting by Alison
Frankel)
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