Three Pensions Head Investor Lawsuit Against Goldman Over Subprime Mortgages

(March 27, 2011) — US District Judge Paul Crotty has named the Arkansas Teachers Retirement System, the West Virginia Investment Management Board, and the Plumbers and Pipefitters National Pension Group as co-lead plaintiffs in an investor lawsuit against Goldman Sachs Group.

The pension schemes filed the suit in an effort to recover losses from the banking giant’s alleged misleading statements about Abacus, a credit derivative product based on mortgage-backed securities. Represented by the law firms Robbins Geller Rudman & Dowd LLP and Labaton Sucharow LLP, the funds reportedly suffered the most severe losses connected with the case of any of the proposed plaintiffs, Reuters reported.

The litigation against Goldman comes after the bank agreed to pay $550 million last July to settle a civil fraud suit brought by the Securities and Exchange Commission (SEC).

“This settlement is a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing,” Robert Khuzami, director of the SEC’s Division of Enforcement, said in a statement. The suit charged Goldman of deceiving clients by selling mortgage securities that were secretly designed by a hedge-fund firm to cash in on the housing market’s collapse, putting a spotlight on one of several Wall Street firms, such as Morgan Stanley, J.P Morgan Chase, Deutsche Bank, Bank of America and UBS, that participated in the structuring and marketing risky products as the US housing market was beginning to falter.

“The SEC is continuing to investigate the practices of investment banks and others involved in the securitization of complex financial products tied to the US housing market as it was beginning to show signs of distress,” Kenneth Lench, chief of the SEC’s Structured and New Products Unit, stated last year in a release.

In September 2010, the Financial Services Authority (FSA) fined Goldman Sachs £17.5 million ($27 million) for failing to reveal the SEC probe into Abacus. The fine against the bank was the second-largest ever levied by the FSA, ranking behind the £33.3 million fine filed in June against JPMorgan Chase & Co.