| NEW YORK
NEW YORK May 7 Goldman Sachs Group Inc
must face fraud claims brought by CIFG Assurance North America
over insurance it provided for $275 million in
mortgage-backed securities, a New York state appeals court ruled
CIFG claimed in a 2011 lawsuit that the investment bank
fraudulently induced it to provide insurance for a portfolio of
more than 6,000 subprime residential mortgages by concealing the
shoddy quality of the loans.
A trial judge in Manhattan threw out that claim last year,
ruling that CIFG would have uncovered the alleged
misrepresentations had it performed proper due diligence.
The New York State Supreme Court's Appellate Division, First
Department, reversed on Tuesday, finding that CIFG had done
enough by having an outside consultant analyze the loans.
"There is a question of fact as to whether plaintiff
reasonably relied on defendants' representations," a five-judge
panel wrote in a unanimous decision.
Michael DuVally, a spokesman for Goldman, declined to
The ruling also revived fraud claims against M&T Bank Corp
, one of several originators that sold the loans to
Goldman. An M&T Bank spokesman did not immediately respond to a
request for comment.
The decision could have implications for similar lawsuits
brought by monoline insurers against banks, including one filed
by Assured Guaranty Ltd against JPMorgan Chase & Co
In that case, JPMorgan had asked a New York judge to dismiss
similar fraud claims but agreed to hold off until the First
Department ruled in the CIFG case.
Other insurers, including Ambac Financial Group Inc
and MBIA Inc, have also filed lawsuits claiming banks
misled them into insuring toxic mortgage-backed securities
before the housing market meltdown by concealing major risk in
the underlying loans.
Tuesday's ruling also let stand breach of contract claims
CIFG is seeking compensation for claims as well as buy-backs
of defective loans.
"We're very pleased with the decision, and we look forward
to proving our case," Michael Vogel, a lawyer for CIFG, said.
The case is CIFG Assurance North America, Inc., v. Goldman
Sachs & Co., New York State Supreme Court, New York County, No.