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Thursday, June 10, 2010

Timberwolf Bites Goldman Sachs

News summary by MFWire's editors

Timberwolf is causing more legal troubles for Goldman Sachs. Wednesday Basis Yield Alpha Fund, an Australian hedge fund manager, filed a lawsuit claiming that Goldman used fraud to peddle the fund. Basis is asking for $56 million in damages and $1 billion in punitive damages. The suit could be the first of many.

Wednesday, Reuters had reported that talks between Basis and Goldman had "broken down" and that Goldman was unlikely to settle.

The suit is filed with the U.S. District Court for the Southern District of New York. In it, Basis claims that it invested $78 million in the CDO instrument dubbed Timberwolf and suffered steep losses as housing prices fell and Timberwolf was liquidated in 2007.

Goldman spokesman told the Wall Street Journal that this "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."

Basis' lawyers have a different explanation. "Goldman was pressuring investors to take the risk of toxic securities off its books with knowingly false sales pitches," Eric L. Lewis, a partner at law firm Baach Robinson & Lewis told the paper. 

Edited by: Sean Hanna, Editor in Chief

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