Goldman to face mortgage debt class-action lawsuit

Goldman to face mortgage debt class-action lawsuit

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(Global Markets) - Goldman Sachs Group Inc was ordered by a federal judge to face a securities class-action lawsuit accusing it of defrauding investors about a 2006 offering of securities backed by risky mortgage loans from a now-defunct lender.

U.S. District Judge Harold Baer in Manhattan certified a class-action lawsuit by investors led by the Public Employees' Retirement System of Mississippi.

These investors claimed they lost money in the GSAMP Trust 2006-S2, a $698 million offering of certificates backed by second-lien home loans made by New Century Financial Corp, a California subprime mortgage specialist that went bankrupt in 2007.

Thursday's decision is a setback for Goldman, which had sought to force investors to bring their cases individually.

Class certification lets investors pool resources, which can cut costs, and can lead to larger recoveries than if investors are forced to sue individually.

Goldman spokesman Michael Duvally declined to comment.

The bank is one of many accused by Congress, regulators and others of having fueled the nation's housing crisis and 2008 financial crisis in part by having misled investors about the quality of mortgage debt they sold.

Goldman in 2010 agreed to pay $550 million to settle U.S. Securities and Exchange Commission fraud charges over a collateralized debt obligation it sold, Abacus 2007-AC1 CDO.

"CREATIVE CUTTING AND PASTING"

The Mississippi fund claimed the GSAMP offering documents were false and misleading, saying Goldman's boilerplate disclosures failed to reveal how New Century had ignored its own underwriting standards and used inflated appraisals.

It blamed Goldman's poor due diligence for the bank's failure to find these problems when it bought New Century's loans and packaged them into securities.

Goldman countered that class-action status was inappropriate given the wide range of certificates offered, the differences among the "highly sophisticated institutional investors" that bought the debt, and even that some investors might have had "storm warnings" about New Century's practices.

Baer rejected the defense, even faulting Goldman's "creative cutting and pasting" of a 200-page deposition to bolster its claim that the Mississippi fund was on notice of problems.

"In light of my finding that the common issues predominate, it does not seem likely questions regarding individual investor knowledge, statutes of limitation or any other issue will become unmanageable," Baer wrote.

David Wales, a partner at Bernstein Litowitz Berger & Grossmann, which was named lead counsel, declined to discuss Baer's ruling, but said the plaintiffs plan to proceed toward a possible October trial.

The case is Public Employees' Retirement System of Mississippi v. Goldman Sachs Group Inc et al, U.S. District Court, Southern District of New York, No. 09-01110.

(Reporting By Jonathan Stempel in New York; Additional reporting by Alison Frankel; Editing by Phil Berlowitz)

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Disney CEO Iger buys $1 million worth of Apple stock

Disney CEO Iger buys $1 million worth of Apple stock

Stock Market Predictions

(Global Markets) - Apple Inc's newest board member, Walt Disney Co Chief Executive Officer Bob Iger, bought about $1 million worth of the iPhone maker's shares earlier this week, a symbolic gesture of confidence in the prospects of the company.

Iger, who was appointed to Apple's board on November 15, bought 2,670 Apple shares on the open market on Tuesday at an average price of $375 each, according to a U.S. Securities and Exchange Commission filing.

Iger's wife also owns 75 Apple shares, the filing said.

As part of being a director of Apple, the long-time Disney executive also is entitled to the standard $50,000 annual retainer and received an initial grant of 142 restricted Apple stock units that will vest in February.

(Reporting by Poornima Gupta; Editing by Lisa Von Ahn)

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KiOR shares flat in trading debut

KiOR shares flat in trading debut

Stock Market Predictions

(Global Markets) - Shares of private-equity backed biofuels maker KiOR Inc (KIOR.O) had a muted opening in their market debut on Friday, a day after the company raised 25 percent less than it expected in its initial public offering.

Shares were up marginally at $15.07 in early trade on Nasdaq.

Pasadena, Texas-based KiOR, which uses non-food biomass such as wood chips and switch grass to make crude oil, priced its offering of 10 million shares at $15 each.

It had earlier planned to sell the shares for $19 to $21 each.

KiOR becomes the latest company to see its IPO's success hurt amid uncertainties in the U.S. economy.

Earlier this week, Vanguard Health Systems (VHS.N) priced its IPO below its filed range, raising 18 percent less than expected while oil and gas equipment manufacturer Stewart & Stevenson LLC postponed its IPO.

KiOR has reported a loss every year since its inception in December 2007, and expects to continue posting losses, according to filings with the U.S. Securities and Exchange Commission.

(Reporting by Brenton Cordeiro and Tanya Agrawal in Bangalore; Editing by Joyjeet Das)

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Goldman Sachs subpoenaed for financial crisis role

Goldman Sachs subpoenaed for financial crisis role

Stock Market Predictions

NEW YORK (Global Markets) - New York prosecutors have asked Goldman Sachs to explain its behavior in the run-up to the financial crisis, the latest investigation that has cast a pall over the reputation of the largest U.S. investment bank.

Goldman Sachs Group Inc now faces probes by several government authorities into derivatives trades it executed in late 2006 and 2007. On Thursday, sources close to the matter said Goldman received a subpoena from the Manhattan district attorney, who joins the Justice Department and the Securities and Exchange Commission in examining Goldman's actions.

Separately, New York Attorney General Eric Schneiderman is investigating Goldman as part of a broader probe into the mortgage operations and securitization practices of seven banks. A source familiar with the situation said Schneiderman's office met Goldman executives and attorneys in the past two weeks.

The probes follow a scathing report by U.S. lawmakers that cast Goldman as a central villain of the financial crisis and accused it of misleading clients about mortgage-linked securities.

The report by a Senate subcommittee, headed by Democrat Carl Levin, said Goldman offloaded much of its subprime mortgage exposure to unsuspecting clients as the market for such securities was starting to tank. In some cases, the bank dragged its heels when clients wanted to get out of their losing positions, according to the report.

The investigations do not imply the bank or its top executives will face criminal or civil charges, but they display a growing interest by prosecutors to build a case against Goldman, legal experts said.

"They have subpoena power to get certain records, correspondence, emails and they're trying to find out every last detail that could prove fraud," said Peter Berlin, an attorney who represents defendants in white-collar cases.

The U.S. Department of Justice is also likely to subpoena the bank, The Wall Street Journal reported recently.

The Manhattan district attorney, Cyrus Vance, is not seeking new documents, according to one source, but wants to ask further questions about the information contained in the Levin report.

Vance, the son of former U.S. secretary of state Cyrus R. Vance, said earlier this year he wanted to use a far-reaching 1921 law called the Martin Act to toughen penalties for securities fraud.

The state attorney general's probe is largely being conducted under that statute, according to the source familiar with that case. The state can seek civil or criminal charges, while the Manhattan D.A. can only pursue criminal charges, potentially making its burden of proof more difficult.

Still, the Manhattan D.A.'s office has used the Martin Law to crack down on white-collar crime in the past. High-profile cases the office prosecuted using the Martin Act include brokerage firm A.R. Baron & Co and ex-Tyco chief Dennis Kozlowski.

In a statement, Goldman said: "We don't comment on specific regulatory or legal issues, but subpoenas are a normal part of the information request process and, of course, when we receive them we cooperate fully."

Both Levin's and Vance's offices declined comment on Thursday.

SCATHING REPORT

The probes into the behavior of Goldman and some of its peers signal increasing determination by U.S. government agencies to investigate the actions of banks in the years leading up to the financial crisis and to determine whether misdeeds by executives made the meltdown worse.

One of the first big cases was the Securities and Exchange Commission's civil fraud suit against Goldman last year over the bank's failure to disclose information linked to a complex mortgage security. Goldman settled those charges in July without admitting or denying guilt, but it did express regret for failing to disclose information.

Goldman's shares fell as much as 3.4 percent as news of the subpoena emerged on Thursday, but then took back much of their losses and closed 1.3 percent down at $134.38. The stock has been declining since January, but its sell-off has accelerated since the release of the Levin report and it is now approaching its 52-week low of $129.50.

Even if there is a low likelihood of successful civil or criminal action against Goldman Sachs, continued pressure from politicians and the public could still hurt the firm, Sanford Bernstein analyst Brad Hintz wrote in a note on Wednesday.

"We believe that Goldman's clients will begin to rethink their relationship with the firm and the franchise will ultimately suffer," Hintz wrote, adding the bank would be wise to make amends with the public soon.

But other veteran analysts said recently that concerns about the Goldman investigations are overblown and little will likely come from them.

JPMorgan analyst Kian Abouhossein raised his rating on the bank to "overweight" from "neutral" earlier this week and said possible negative news is already reflected in the bank's share price.

However, some investors take a more negative view.

"When the government has you in its cross-hairs, it takes forever to get out of it," said Matt McCormick, portfolio manager at Cincinnati-based Bahl & Gaynor Investment Counsel.

"Shareholders need to understand, this is going to be an ongoing risk for years."

(Reporting by Lauren Tara LaCapra; additional reporting by David Gaffen, Maria Aspan; editing by Dan Wilchins, John Wallace, Matthew Lewis and Andre Grenon)

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