Heungkuk, Goldman to arbitrate dispute

Wed Dec 21, 2011 6:42pm EST

(Reuters) - Heungkuk Life Insurance Co has withdrawn a $47 million lawsuit against Goldman Sachs & Co (GS.N) over the Timberwolf collateralized debt obligation (CDO) and will arbitrate the case instead.

The South Korean insurer accuses Goldman of placing bets against the $1 billion CDO after marketing it to clients as profitable, according to a lawsuit Heungkuk filed against Goldman earlier this year.

In a court filing made public on Wednesday, Heungkuk withdrew the lawsuit and the parties said they agreed to pursue an "extrajudicial resolution."

"Heungkuk is looking forward to holding Goldman Sachs responsible for its fraud in the arbitration," said Jonathan Pickhardt, a partner at Quinn Emanuel Urquhart & Sullivan LLP, who is representing Heungkuk.

Michael DuVally, a spokesman for New York-based Goldman Sachs, declined to comment on the withdrawal of the lawsuit.

Goldman has said in court papers that it disclosed both the investment risks it knew of and its short positions.

The bank filed a motion in June to compel arbitration of the claims and hold off or dismiss the lawsuit.

In the lawsuit, filed in state court in New York, Heungkuk said Goldman had marketed the CDO as "highly rated, secure and profitable."

But in an internal email a Goldman trader infamously described the Timberwolf CDO was "one shitty deal," the lawsuit said.

Goldman began to structure and underwrite Timberwolf in late 2006. Unbeknown to Heungkuk and other investors, Goldman filled its collateral portfolio with inferior assets that would lose their value in the subprime mortgage market meltdown, the lawsuit said. The CDO was devised to enable Goldman to short the $1 billion portfolio, Heungkuk said in court papers.

The case was one of a number winding their way through the courts that have grown out of the alleged misconduct of Goldman Sachs and other banks in connection with the subprime mortgage crisis.

The case is Heungkuk Life Insurance Co. limited v. The Goldman Sachs Group Inc., 650978/2011, New York state Supreme Court (Manhattan).

(Reporting by Karen Freifeld; Editing by Eddie Evans and Tim Dobbyn)

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