By Karen Freifeld
NEW YORK May 14 Goldman Sachs Group Inc
won dismissal on Tuesday of fraud claims brought by a bond
insurer over a CDO tied to subprime mortgage securities called
In a 3-2 decision, a New York state appeals court dismissed
a complaint by ACA Financial Guaranty Corp accusing
Goldman of fraudulently inducing the company to insure the CDO,
or collateralized debt obligation.
ACA is a "highly sophisticated commercial entity" whose
claims of being misled were contradicted by the offering
disclosure and other evidence, according to decision by the
Appellate Division, First Department in Manhattan.
ACA Financial claimed Goldman deceived it into believing
Paulson & Co, a hedge fund, was a long investor in the Abacus
CDO, when it knew Paulson would take a short position.
In its ruling, the appeals court said ACA could have asked
Paulson & Co what position it intended to take.
In 2010, Goldman, without admitting wrongdoing, settled with
the U.S. Securities and Exchange Commission for $550 million
over claims it misled investors in Abacus.
Attorney Marc Kasowitz, who represents ACA Financial, said
the insurer would appeal the court's decision and might ask the
divided appellate panel to reconsider.
Kasowitz also said there is a "live" amended complaint
filed in January that named Paulson & Co as a defendant in the
That complaint also said that Goldman engaged in fraudulent
inducement and fraudulent concealment, the two causes of action
the appeals court dismissed.
ACA brought claims against Paulson for fraud, like those
against Goldman, and added a claim for aiding and abetting
A motion by Paulson to dismiss that complaint is pending. A
spokesman for the firm had no immediate comment on the appeals
"We are pleased with the court's decision to dismiss ACA's
claim against Goldman Sachs," said Tiffany Galvin, a spokeswoman
for Goldman. She declined further comment.
In the SEC case, the government claimed Goldman and Vice
President Fabrice Tourre failed to tell investors that Paulson
helped choose and bet against the mortgage securities underlying
Abacus. While Goldman settled, Tourre's trial is set to begin on
The case is ACA Financial Guaranty v Goldman Sachs in New
York State Supreme Court, New York County No. 650027/201l.