Judge dismisses Timberwolf CDO suit against Goldman
A U.S. District Judge dismissed a year-long lawsuit Wednesday claiming Goldman Sachs (GS) duped investors over a collateralized debt obligation known as Timberwolf 2007-1. Basis Yield Alpha Fund, an insolvent mutual fund based in the Cayman Islands, brought the suit in June 2010, alleging the faulty CDO, which is a complex security backed my mortgages, gouged the firm for more than $50 million and forced it into insolvency. Goldman put the $1 billion Timberwolf deal together in March 2007. Soon after it was issued, the CDO lost most of its value. BYAF presented an internal email at Goldman from Thomas Montag, the former head of sales and trading at Goldman, in which he called Timberwolf "one shitty deal." BYAF claimed it and its financial adviser received misrepresentations from Goldman and its partners on the deal, specifically on the value of the offered securities. In a June 2007 conference call with Goldman and other representatives, BYAF alleges it was assured the CDO market would "remain price stable" going forward and Timberwolf would be a "good entry point." That same day, BYAF purchased $50 million in triple-A rated securities and another $50 million in double-A rated securities from Timberwolf at a discounted price of $80.8 million. According to BYAF, Goldman sent a series of margin calls totaling more than $30 million within weeks – meaning the valuation of the securities allegedly fell more than $30 million shortly after BYAF bought it. But Judge Barbara Jones, of the U.S. District Court of the Southern District of New York, ruled that BYAF did not show the transaction was a domestic one and therefore, the case could not be tried in a U.S. court. While Jones conceded the deceit was allegedly placed in New York, BYAF never explicitly said where the transaction took place. Rather, BYAF only alleges that "on or about June 13, 2007, BYAF agreed to purchase [the Timberwolf securities] from Goldman." "Plaintiff fails to provide inference that the purchase or sale was made in the United States," Jones said. Jones did leave room for the plaintiff to file an amended complaint with 30 days. Write to Jon Prior. Follow him on Twitter @JonAPrior.