Goldman Sachs Group asked a federal court judge to dismiss a $1 billion lawsuit by Australian hedge fund Basis Capital, arguing that a June U.S. Supreme Court decision bars the claim.
The lawsuit by Basis Capital’s Basis Yield Alpha Fund focuses on Goldman Sachs’ sale of the “Timberwolf” collateralized debt obligation. The complaint, filed June 9 in U.S. District Court in New York, says the fund was forced into insolvency after buying mortgage-linked securities created by Goldman Sachs, in what one of its own executives described internally as a “sh*tty deal.”
Goldman Sachs argued that the suit is barred by the Supreme Court’s June 24 ruling in Morrison vs. National Australia Bank. In that case, the high court held that U.S. securities laws don’t apply to the claims of foreign buyers of non-U.S. securities on foreign exchanges.
“This litigation presents a contract dispute between two foreign entities, executed abroad and governed by English law, and Morrison makes clear that it does not belong in this court,” Goldman Sachs said in a filing dated Monday.
Eric Lewis, a lawyer for Basis, didn’t immediately return a voice-mail message seeking comment on the court filing.
In the complaint, Basis alleged that Goldman falsely claimed in June 2007 that the market for investments such as Timberwolf had stabilized. Basis claims it closed on its deal with Goldman to buy credit default swaps tied to Timberwolf at the same time Thomas Montag, Goldman’s former head of sales and trading for the Americas, sent the e-mail calling the Timberwolf CDO “one shi*tty deal.”
Basis, which invested $78 million in Timberwolf, is seeking compensatory and punitive damages from Goldman Sachs.