Goldman Sachs Group (GS) will pay $272 million to more than 400 bond investors, including two electrical pension funds, to settle a lawsuit alleging that it made misleading disclosures in order to sell mortgage securities backed by faulty loans. The lead plaintiff in the case was the NECA-IBEW Health and Welfare Fund, which is an Illinois-based electrical workers pension fund.
When NECA-IBEW filed its lawsuit against Goldman Sachs in 2008, it contended that not only did it make false statements but also it left out key information about the mortgages it sold into 17 trusts the year before. The plaintiff also said that Goldman misled investors about the underwriting of the loans behind the securities, as well as about the quality of appraisals and whether borrowers were capable of paying back their loans. The fund said that the securities’ prices fell during and after the economic crisis while their credit ratings slipped from triple-A to triple C junk grades.
Writing about the complaint in 2008, HousingWire Publisher Paul Jackson said that some of the claims were over the alleged use of inflated appraisals by the originating entities. He noted that many of the loans in the trusts were of the no-doc, reduced-doc, stated-income ilk, which the plaintiff believes are fraudulent.
Reuters says that this may be among the largest settlements of class action securities case seeking to hold banks accountable for their sale of poor quality mortgage securities leading up to the economic crisis. According to the plaintiffs, for many years, Goldman made misleading and false statements about the quality of mortgage-pass through certificates and asset-backed certificates that were issued by different securitization trusts in 2007. They also contend that registration statements for these trusts violated federal securities laws.
Goldman initially promoted the certificates as high-rated fixed income products that were rated AAA when they were sold. The loans backing the securities had been made by a number of firms, including GSAA Home Equity, Countrywide Financial, and Greenpoint Mortgage Funding. The certificates, which were underwritten by Goldman, held about $11 billion in principal.
The plaintiffs maintain that the investments turned out to be very risky and should have received a ‘junk’ rating at the very least. These same investments were eventually downgraded into junk status.
Goldman challenged NECA-IBEW ‘s ability to sue over the mortgages and the lawsuit ended up in the US Supreme Court,. However, two years ago, the nations’ highest court decided not to hear the lawsuit after the Second Circuit held that the plaintiff had standing to file its lawsuit against the firm over the mortgage bonds, even if some of the claims were over offerings in which other parties were involved.
Even though Goldman is settling it continues to deny liability. Now, a district court judge must approve the agreement between the parties.
At The SSEK Partners Group, our mortgage-backed securities lawyers are dedicated to helping investors of securities fraud get back their financial losses. We represent clients throughout the United States. Your initial consultation with us is a free, no obligation case assessment. We represent clients on a contingency basis, meaning that any legal fees will only come out of what you recover from the negligent parties.
Goldman Sachs to pay $272 million in toxic mortgage lawsuit, HousingWire, August 13, 2015
Goldman to pay $272 million to settle mortgage lawsuit, Reuters, August 13, 2015