Magazine article American Banker

Goldman Asks Supreme Court to Reject Mortgage Class Action

Magazine article American Banker

Goldman Asks Supreme Court to Reject Mortgage Class Action

Article excerpt

Byline: Brian Browdie

Goldman Sachs (GS) is asking the U.S. Supreme Court to overturn a lower-court decision involving securities backed by residential mortgages the company says would cost financial firms tens of billions of dollars.

Goldman has asked the court to toss out a ruling in September by the U.S. Court of Appeals for the 2nd Circuit that permits the NECA-IBEW Health & Welfare Fund, a pension fund for electrical workers, to sue Goldman for allegedly misleading investors about mortgage-backed securities the fund itself did not own.

The 2nd Circuit's decision conflicts with a ruling last year by the 1st Circuit, Goldman argues.

The case arose out of NECA's purchase in 2007 and 2008 of securities from two of 17 trusts Goldman offered.A The fund purchased $390,000 worth of securities from one trust and $50,000 from another, according to Goldman's appeal.

In 2008, NECA filed a suit on behalf of buyers of securities from all 17 trusts. It contended Goldman mislead investors about the underwriting and appraisal standards used by the banks that originated the loans backing the trusts and omitted from securities filings information about the banks' lending practices.

A trial court dismissed NECA's claims involving securities from the 15 trusts it did not do business with, but the 2nd Circuit later decided that NECA could bring a class action on behalf of investors in the other offerings. The 2nd Circuit decision clashes with one made in 2011 by the 1st Circuit, which ruled in a separate case that MBS investors may not sue an issuer over securities they did not purchase. …

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