(Reuters) – Goldman Sachs Group Inc lost its bid to dismiss a lawsuit accusing it of defrauding investors by selling risky debt linked to subprime mortgages that it planned to bet against.
The decision by U.S. District Judge Victor Marrero in New York keeps alive a hedge fund’s claims over a $2 billion offering of collateralized debt obligations, amid intense scrutiny over Goldman’s activities before and after the 2008 financial crisis.
Marrero said the hedge fund Dodona I LLC may pursue nearly all its claims against Goldman, including that the Wall Street bank recklessly or intentionally sold the Hudson Mezzanine Funding CDOs to offload subprime risk on unsuspecting investors.
“Goldman’s sudden — and prescient — shift to reducing subprime risk supports the inference that it possessed some unique insight” about the “bittersweet potion” of CDOs it was selling, Marrero wrote in a 64-page decision.
A Goldman spokesman, Michael DuVally, declined to comment. Richard Klapper, a lawyer for the bank and co-defendants Peter Ostrem and Derryl Herrick, who were Goldman structured finance executives, did not immediately return a call seeking comment.
Lawrence Lederer, a lawyer representing Dodona, called Marrero’s decision “extremely well-reasoned, measured, and very substantially supported. We are eager to ultimately try the case on behalf of our client and other investors in the Hudson CDOs.”
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