Share

Australia hedge fund sues Goldman

Sydney - The manager of an Australian hedge fund is suing US investment bank Goldman Sachs for more than $1bn over a bad product it claims made it bankrupt, a lawyer said Thursday.

Basis Capital's Yield Alpha Fund went bust after losing $56m in two weeks on the "Timberwolf" collateral debt obligation (CDO), sold by Goldman Sachs dealers who knew it would fail, said lawyer Eric Lewis.

"They knew that they were shaky, they were assembled to be shaky to take some of the worst securities off of their books and put the risk on somebody else," Lewis told Australian public radio from Washington.

"It was done at a time when Goldman's own internal emails showed they had absolutely zero confidence in the CDO market and they knew it was going to fail, the only question was when," he said.

The suit, filed Wednesday in the US District Court's southern New York district, is seeking to recover the $56m lost from $80m outlaid, and more than $1bn in punitive damages.

Lewis said Timberwolf was "immortalised" in internal emails, made public in congressional hearings, which called it "one shitty deal". Timberwolf cleaned out Basis's $500m Yield Alpha Fund, forcing it into bankruptcy.

Goldman Sachs deliberately sold the product to smaller market players because they knew bigger firms would recognise it as "largely unsaleable", he added, comparing the company's workers to used car salesmen.

"Goldman Sachs salesmen were sent out using the kind of pressure tactics you see on used car lots trying to flog these securities any way that they could," Lewis said.

He added that the company knew "the potential for disaster (was) there the moment the market turns south".

Basis alleges Goldman not only sold the investments knowing that they were unlikely to perform, but that Goldman itself bet against the performance of those assets, and began making margin calls on it within two-and-a-half weeks.

The case echoes a civil fraud suit filed against Goldman in April by the US Securities and Exchange Commission accusing the bank of "defrauding investors by misstating and omitting key facts" about a similar product based on subprime mortgage-backed securities.

"I think Goldman and the investment banks have really lost their way in terms of their movement from honourable server of customers to essentially being a kind of buyer-beware dealer in a casino where they're the house and everybody else loses," said Lewis.

Goldman dismissed the legal action as a "misguided attempt by Basis, a hedge fund that was one of the world's most experienced CDO investors, to shift its investment losses to Goldman Sachs.

"Basis made its investment at market levels, levels that it deemed attractive," a spokesperson said.

 - AFP

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.94
-0.2%
Rand - Pound
23.90
-0.0%
Rand - Euro
20.43
+0.2%
Rand - Aus dollar
12.34
+0.1%
Rand - Yen
0.13
-0.1%
Platinum
907.85
+1.2%
Palladium
1,012.25
+1.1%
Gold
2,219.28
+1.1%
Silver
24.85
+0.8%
Brent Crude
86.09
-0.2%
Top 40
68,346
+1.0%
All Share
74,536
+0.8%
Resource 10
57,251
+2.8%
Industrial 25
103,936
+0.6%
Financial 15
16,502
-0.1%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders