Monday, May 20, 2013

NYS Intermediate Appeals Court: OK To Screw Big-Time Bond Insurer In Collateralized Crappy Mortgage Transaction; Victim Was Too Commercially Sophisticated, It Should Have Known Better Than To Get Into A Deal Like That!

The Wall Street Journal reports:

  • Goldman Sachs Group Inc. obtained a victory in New York state appeals court in a case involving a complex mortgage security, moving the firm further from a crisis-era cloud.

    The New York state appeals court tossed out a lawsuit on Tuesday by bond insurer ACA Financial Guaranty Corp., which got burned in a complex security deal along with investors while hedge fund Paulson & Co. scored big profits.

    ACA had maintained that Goldman fraudulently induced it to insure the collateralized-debt- obligation deal known as Abacus 2007-AC1.

    A CDO is a pool of loans, such as subprime mortgages, sold in slices to investors. Goldman arranged it just as the housing market was collapsing in 2007 in the months leading up to the financial crisis.

    The New York State Supreme Court’s Appellate Division, in a 3-2 decision, dismissed ACA’s fraud claims against Goldman, saying as a “highly sophisticated commercial entity,” ACA should have realized something was amiss.
  • “It’s a good day for Goldman, but the other shoe may still drop,” said John Coffee, a professor at Columbia Law School in New York. With a 3-2 decision on a high-profile case, the matter “is likely to go up to the court of Appeals,” Mr. Coffee added.
For more, see Judge Says Insurer Should Have Known Better on Debt Deal (Goldman Sachs scored a victory in a New York state appeals court Tuesday, winning the dismissal of a lawsuit filed against it by a bond insurer over a financial product that went sour during the financial crisis).

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