Goldman Sachs must face fraud claims from insurer: N.Y. court

Tue May 7, 2013 2:49pm EDT
 
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By Joseph Ax

NEW YORK (Reuters) - Goldman Sachs Group Inc (GS.N: Quote) must face fraud claims brought by CIFG Assurance North America CADEGA.UL over insurance it provided for $275 million in mortgage-backed securities, a New York state appeals court ruled on Tuesday.

CIFG claimed in a 2011 lawsuit that the investment bank fraudulently induced it to provide insurance for a portfolio of more than 6,000 subprime residential mortgages by concealing the shoddy quality of the loans.

A trial judge in Manhattan threw out that claim last year, ruling that CIFG would have uncovered the alleged misrepresentations had it performed proper due diligence.

The New York State Supreme Court's Appellate Division, First Department, reversed on Tuesday, finding that CIFG had done enough by having an outside consultant analyze the loans.

"There is a question of fact as to whether plaintiff reasonably relied on defendants' representations," a five-judge panel wrote in a unanimous decision.

Michael DuVally, a spokesman for Goldman, declined to comment.

The ruling also revived fraud claims against M&T Bank Corp (MTB.N: Quote), one of several originators that sold the loans to Goldman. An M&T Bank spokesman did not immediately respond to a request for comment.

The decision could have implications for similar lawsuits brought by monoline insurers against banks, including one filed by Assured Guaranty Ltd (AGO.N: Quote) against JPMorgan Chase & Co (JPM.N: Quote) in 2012.   Continued...

 
A Goldman Sachs sign is seen on at the company's post on the floor of the New York Stock Exchange, January 18, 2012. REUTERS/Brendan McDermid