Goldman Sachs (GS) won dismissal Tuesday of a shareholder suit claiming board members and executives ignored mortgage securities and servicing flaws and hurt the company when they exited the Troubled Asset Relief Program early.

Shareholders, including the Alabama Retirement Relief System, filed the suit alleging the executives, including CEO Lloyd Blankfein, knew about troubled loans being packaged into mortgage bonds and collateralized debt obligations such as Abacus.

Shareholders also claimed they allowed Litton Loan Servicing, the mortgage unit since sold to Ocwen Financial Corp. (OCN), robo-signed foreclosure documents and led to a consent order with the Federal Reserve Bank of New York.

Finally, the shareholders sued over the decision to repay TARP funds two days after the Treasury Department announced a new office would determine executive pay at the banks still in the program.

But Judge William Pauley with the U.S. District Court for the Southern District of New York ruled the plaintiffs showed "no such red flags that would alert the (defendants) of broken controls" in its servicing or securities divisions.

The shareholders did provide various presentations showed to the executives before they allegedly decided to "short" the mortgage market, but Pauley wrote "these types of general warnings about difficulties in a sector of the financial markets are insufficient to put (the defendants) on notice that Goldman included troubled loans in its RMBS portfolio."

Pauley also threw out the TARP claim because the shareholders could not show exiting the program early actually harmed the bank, he said. He also denied the shareholders motion to amend the complaint after they failed to do so after an earlier hearing.

The dismissal adds to a string of good news for the investment bank's past mortgage issues.

Both the Securities and Exchange Commission and the Justice Department dropped investigations last week into residential mortgage-backed securities Goldman sold prior to the crisis.