Fraud is fraud and should be prosecuted, Goldman most of all.
Goldman blames hedge fund victim in Hudson CDO fraud case
By Alison Frankel - On the Case (Thomson Reuters)
Remember the case over Goldman Sachs's Hudson CDOs, in which U.S. District Judge Victor Marrero wrote a scalding opinion in March? Marrero refused to dismiss fraud claims against the bank, in a ruling that detailed Goldman Sachs's alleged scheme to shed exposure to subprime mortgages by dumping toxic collateralized debt obligations on an unsuspecting public. This week Goldman had a little something to say about the case, and -- surprise! -- it's not an apology.
On Monday the bank's lawyers at Sullivan & Cromwell filed Goldman's answer and counterclaims to the securities fraud suit brought by the Dodona hedge fund. (Hat tip to Brune & Richard's new must-check website, S.D.N.Y. Blog.) The most interesting part of the filing comes 40 pages in, when the bank outlines why (in its view) Dodona -- and not Goldman -- is the real wrongdoer in the Hudson CDO scenario.
According to Goldman, the hedge fund and its founder, former Salomon Brothers asset-backed trader Alan Brody, knew exactly what they were getting when they bought Hudson CDOs. The fund explicitly marketed itself as an expert in the "structural complexity" of "mortgage-related CDO equity and structured credit products." Dodona told investors it was "uniquely qualified to make informed and sound investment and hedging decisions" about CDOs because Brody and company were savvy about evaluating underlying collateral.
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