Australian hedge fund Basis Capital has revitalized its lawsuit against Goldman Sachs by filing a timely complaint in the New York State Supreme Court. Basis Capital alleges that Goldman Sachs knowingly made fraudulent statements in two collateralized-debt-obligation (CDO) securities sales. Because of these alleged fraudulent statements by Goldman Sachs, Basis Capital claims that it collapsed. The fund is suing for $67 million in compensatory damages and $1 billion in punitive damages. “Its summons complaint argues that Goldman took undisclosed short positions against its own clients and that the firm engaged in an aggressive marketing campaign, fully aware of the risk involved in investing at a time when subprimes were declining.”
While Goldman Sachs has responded that it “acted appropriately and refute[s]” any indication of false misrepresentation, the complaint alleges that Goldman pushed a strategy to invest in its subprime residential home mortgage-based vehicles—Point Pleasant and Timberwolf, which were specifically manufactured to perform poorly. In light of a U.S. Senate report in April 2011, the allegations (and the report) claim that Goldman Sachs was touting these products, even though it expected them to fail. According to Basis Capital, these products ended as toxic inventory, and consequently, brought down their $1 billion hedge fund with it.