* Prudential alleged losses on more then $375 mln RMBS
* Fraud, racketeering claims allowed to proceed
* Goldman, Prudential decline to comment
By Jonathan Stempel
April 9 Goldman Sachs Group Inc must face
a lawsuit in which Prudential Financial Inc accused the
Wall Street bank of defrauding it into buying more than $375
million of residential mortgage-backed securities it knew were
U.S. District Judge Susan Wigenton in Prudential's hometown
of Newark, New Jersey said the second-largest U.S. life insurer
adequately alleged Goldman's deception about the quality of
certificates that several Prudential affiliates had bought from
16 securitizations between February 2004 and December 2008.
She rejected Goldman's argument that Prudential, being
"among the most highly sophisticated participants in the RMBS
market and part of a conglomerate long immersed in the nation's
housing industry," sued in a pique of "buyer's remorse," and
relied too much on unsupported assumptions.
Like many other U.S. commercial and investment banks,
Goldman has been the target of many lawsuits over its packaging
and sale of risky mortgage-linked securities, whose rapid
decline in value was a cause of the 2008 financial crisis.
Bank defendants have often argued that plaintiffs such as
Prudential knew enough to understand what they were buying.
Wigenton nonetheless allowed Prudential to pursue
accusations that Goldman committed fraud, negligent
misrepresentation and racketeering violations.
Prudential's 188-page complaint was originally filed in
August 2012, and sought to recover the insurer's losses or
rescind the certificate purchases.
It drew in part on Congressional and other investigations
over Goldman's role in the financial crisis.
"To use Goldman's own words, the certificates it sold to
Prudential were, 'junk,' 'dogs,' 'crap,' and 'lemons,'" the
insurer said, citing documents revealed in these probes.
In her decision, Wigenton said Prudential had adequately
alleged that Goldman had abandoned its underwriting guidelines,
and could not have done proper due diligence without finding a
"very high percentage" of the underlying loans did not comply.
"The court finds that plaintiffs adequately pled a cause of
action for fraud," Wigenton wrote.
Goldman spokesman Michael DuVally declined to comment.
Prudential spokesman Scot Hoffman declined to comment.
The case is Prudential Insurance Co of America et al v.
Goldman Sachs & Co et al, U.S. District Court, District of New
Jersey, No. 12-06590.