Fraud claims versus Goldman over Abacus CDO are dismissed

Tue May 14, 2013 3:04pm EDT
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By Karen Freifeld

NEW YORK (Reuters) - Goldman Sachs Group Inc (GS.N: Quote) won dismissal on Tuesday of fraud claims brought by a bond insurer over a CDO tied to subprime mortgage securities called Abacus.

In a 3-2 decision, a New York state appeals court dismissed a complaint by ACA Financial Guaranty Corp ACAFG.UL accusing Goldman of fraudulently inducing the company to insure the CDO, or collateralized debt obligation.

ACA is a "highly sophisticated commercial entity" whose claims of being misled were contradicted by the offering disclosure and other evidence, according to decision by the Appellate Division, First Department in Manhattan.

ACA Financial claimed Goldman deceived it into believing Paulson & Co, a hedge fund, was a long investor in the Abacus CDO, when it knew Paulson would take a short position.

In its ruling, the appeals court said ACA could have asked Paulson & Co what position it intended to take.

In 2010, Goldman, without admitting wrongdoing, settled with the U.S. Securities and Exchange Commission for $550 million over claims it misled investors in Abacus.

Attorney Marc Kasowitz, who represents ACA Financial, said the insurer would appeal the court's decision and might ask the divided appellate panel to reconsider.

Kasowitz also said there is a "live" amended complaint filed in January that named Paulson & Co as a defendant in the case.   Continued...

A Goldman Sachs sign is seen over the company's trading stall on the floor at the New York Stock Exchange, March 21, 2013. REUTERS/Brendan McDermid