Goldman Sachs, Citigroup Sued Over Subprime Loans

Over and over again, investors are coming out of the woodwork. When will they realize they are in perfect position to assert ownership of the loans and workout deals with borrowers that make sense to everyone?

Goldman Sachs, Citigroup Sued Over Subprime Loans

By William McQuillen – Jul 12, 2010
Goldman Sachs Group Inc., Citigroup Inc. and Morgan Stanley were sued by a Boston area-based fund seeking reimbursement for losses related to subprime loans, according to lawyers for the firm.

Cambridge Place Investment Management Inc., founded by founded by ex-Goldman Sachs Group bankers Martin Finegold and Robert Kramer, lost more than $1.2 billion as a result of the banks’ untrue statements, the company claims in a complaint filed July 9 in state court in Massachusetts.

The banks sold securities backed by mortgages that came from a “small group of now notorious subprime mortgage originators,” used faulty appraisals, accepted misleading information in loan applications, and violated their own standards for underwriting, the firm claims in the lawsuit. The banks offered or sold $2.4 billion of residential mortgage- backed securities using untrue statements, according to the lawsuit.

“The Wall Street banks conducted inadequate due diligence and failed to satisfy their own responsibilities,” Cambridge Place said in the lawsuit.

The bundling of the riskiest type of mortgages into securities played a role in turning the U.S. housing slump into a global recession as foreclosures deflated bond values and toppled Wall Street firms including Lehman Brothers Holdings Inc.

The banks created an “environment of improper lending practices,” keeping personnel on site at the mortgage lenders to monitor the loan underwriting business, according to the lawsuit.

Representatives from Citigroup, Goldman Sachs and Morgan Stanley declined to comment on the lawsuit.

A copy of the complaint was provided by an attorney for Concord, Massachusetts-based Cambridge Place Investment Management. It wasn’t immediately available on the court’s electronic docket.

The case is Cambridge Place Investment Management Inc. v. Morgan Stanley, 10-2741, Suffolk Superior Court (Boston).

To contact the reporter on this story: William McQuillen in Washington at bmcquillen@bloomberg.net.

7 Responses

  1. There are now 18 shareholder lawsuits against Goldman Sachs!!

    Goldman Sachs Group Inc wants a federal judge to begin combining the 18 shareholder lawsuits it faces in the wake of a U.S. Securities and Exchange Commission’s civil fraud lawsuit against the Wall Street bank. According to a Wednesday night court filing, Goldman faces seven securities class-action complaints and eight derivative complaints in Manhattan federal court. Two more derivative complaints were filed in a New York state court, and another in a Delaware state court. Goldman executives and directors, including Chief Executive Lloyd Blankfein, are defendants in many of the lawsuits. Saying the complaints make “substantially similar” and “overlapping” allegations, including many from the SEC lawsuit, Goldman’s lawyer, Gandolfo DiBlasi from Sullivan & Cromwell LLP, said the bank does not oppose a motion by the Teamsters Allied Benefit Funds to combine the eight derivative complaints overseen by U.S. District Judge Paul Crotty in Manhattan. DiBlasi also asked Crotty to order the complaining shareholders, including those suing in other courts, to discuss proposals that could avoid the “potential duplication of time, effort and expense” from multiple complaints. Among the “critical threshold issues” is whether some of the derivative complaints should be put on hold or dismissed in favor of similar complaints elsewhere, he said. Derivative complaints are filed on behalf of companies to assert claims that management or directors failed to make. The SEC’s April 16 lawsuit accused Goldman of creating and marketing collateralized debt obligations linked to subprime mortgages in early 2007, without telling investors that hedge fund Paulson & Co helped choose and was betting against the underlying securities. Investors lost about $1 billion on the securities, roughly equal to Paulson’s profit, the SEC said. Goldman has denied wrongdoing. It faces a court-imposed July 19 deadline to respond to the SEC lawsuit, which some analysts have said could result in a settlement totaling hundreds of millions of dollars. […]. The Teamsters case is Teamsters Allied Benefit Funds et al v. Blankfein et al, U.S. District Court, Southern District of New York, No. 10-03614. The SEC case is SEC v. Goldman Sachs & Co et al. in the same court, No. 10-03229.

  2. Gosh, how unsympathetic people are towards those of us that are experiencing hardship. They fail to acknowledge that our hardships mostly stemmed from a crisis that the banksters created. I will NOT feel guilty for my inability to meet my obligations. I carried that guilt for too long and I finally returned the blame and guilt to its rightful owner.

  3. How under the servicing agreements are investors supposed to overcome the rights they ceded to servicers to retain the income stream from the collection accounts—my impression from reading postings and examining securitizations is that the proceeds of foreclosure flow into the collection accounts for much later payout to senior tranches. that junior tranches receive only current payments to the extent that those pmts are not cascaded to more senior tranches–would anyone care to elaborate?

  4. The real story: This is a currency war in which the US tax payer will not be able to participate. We are nothing but slaves of usury who are in the way.

  5. The administration, the FCC, CSBS, OTC, FAFA, SEC, FANNIE, FREDDIE, GINNIE are all in bed with these guys. All these investigations and “probes” are sand in the eyes of the “serfs” – the homeowners and the small business people. They want us to believe they are doing something. That’s a load of nonsense. It is one world order, remember. The federal reserve cronies, of which JPM is a fair-haired child, protect eachother. The justice department cronies are also in bed with these guys. Maybe, someday there will be trouble in paradise and all these bedfellows will squeal on eachother.

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