* Basis Yield Alpha Fund can pursue most claims
* Goldman accused of misleading hedge fund over Timberwolf
* Goldman accused of using securities to offload subprime
* Judge let fraud, negligence, other claims survive
By Karen Freifeld
NEW YORK, Oct 19 A judge refused to dismiss a
$1.07 billion lawsuit against Goldman Sachs Group that accuses
it of selling risky debt that it intended to lose value to an
Australian hedge fund, causing the fund to become insolvent.
New York state Supreme Court Justice Shirley Kornreich
denied Goldman Sachs' bid to toss claims of fraud, unjust
enrichment and negligence, among others, by the Basis Yield
The fund accuses Goldman of making false and misleading
statements in connection with the sale of securities to offload
toxic subprime mortgages from its books.
Goldman has argued the losses were caused by the collapse of
the housing market.
The fraud claims survive for the "big picture of fraudulent
conduct," not only on the representations in the complaint,
Kornreich wrote in her decision, citing a similar case in
Manhattan federal court against Goldman by Dodona I, LLC, a
hedge fund that invested in another CDO.
Michael DuVally, a spokesman for Goldman Sachs, declined
"We're very pleased the court agrees with us that Goldman
needs to answer for its conduct," said Washington, D.C.,
attorney Bruce Grace, a partner in Lewis Baach, who represents
Goldman's CDO practices have drawn regulatory scrutiny. In
April 2010, Goldman agreed to pay $550 million to settle U.S.
Securities and Exchange Commission charges that it sold the
risky Abacus 2007-AC1 CDO while letting hedge fund billionaire
John Paulson bet against it. The bank did not admit wrongdoing.
Basis Yield Alpha Fund is seeking to recoup $67 million of
losses plus $1 billion of punitive damages from transactions
known as Timberlake and Point Pleasant. Basis Yield was managed
by Sydney-based Basis Capital Funds Management Ltd.
In her decision, made public Friday, the judge also denied
Goldman's claim that the New York court was an inconvenient
forum, noting that Goldman's headquarters and many witnesses are
in New York. She also refused to compel arbitration.
Kornreich did dismiss claims for breach of contract and
breach of implied covenant of good faith and fair dealing. Among
the fraud claims she left were for fraudulent inducement and
Basis Yield filed the lawsuit in New York state court in
October 2011, three months after a U.S. judge dismissed a
similar case, saying the fund could not sue in federal court
under U.S. securities laws because its investment in the
Timberwolf 2007-1 collateralized debt obligation did not qualify
as a "domestic" transaction.
Timberwolf was cited in a scathing U.S. Senate panel report
in April 2011 that faulted Goldman and others for pushing debt
they expected to perform poorly.
The panel report said Goldman kept marketing Timberwolf even
after an executive in an email to a colleague called Timberwolf
"one shitty deal."
Basis Yield said it lost $56.3 million on Timberwolf in less
than six weeks, and $10.8 million on Point Pleasant in less than
The case is Basis Yield Alpha Fund (Master) v. Goldman Sachs
Group Inc et al, New York State Supreme Court, New York County,