Goldman is Sued by Allstate Insurance Over Mortgage Backed Securities (MBS)

Allstate Insurance Company has filed suit against Goldman Sachs Group Incorporated for the marketing and sales of over $100 million worth of mortgage backed securities (MBS), according to Investment News. The Northbrook, Illinois insurance company claims that Goldman misrepresented the securities it internally called “junk,” “dogs,” “crap” and “lemons” when selling the securities and is seeking compensatory damages in addition to interest, attorneys’ fees and costs. Allstate is said to have bought over $123 million worth of the structured products from Goldman in 2006 and 2007, according to the case filed in the New York State Supreme Court in Manhattan.

Previously, Allstate has sued JP Morgan Chase for more than $700 million, Credit Suisse Group for over $231 million, Merrill Lynch for over $167 million, Citigroup for over $200 million and Deutsche Bank for over $185 million, all related to the sale of mortgage backed securities (MBS).

Goldman had previously agreed with the U.S. Securities and Exchange Commission (SEC) to a $550 million fine in the settlement of charges that it misled investors in the deal called ABACUS 2007-AC1. That was a deal that involved collateralized debt obligations (CDOs). Essentially, Goldman puts together synthetic CDOs knowing that they are destined for failure, without advising investors that a hedge fund manager is shorting $1 billion worth of the securities.

The “terms of endearment” used by Goldman for the mortgage backed securities it packaged and sold to unwary investors seems to evidence what the firm knew about the securities backed by subprime mortgages and how they felt about the product it was peddling. Allstate claims that additional information was gathered from evidence presented to the Financial Crisis Inquiry Commission and from the SEC’s civil fraud case.

In a related matter, Goldman was sued by the National Credit Union Administration (NCUA) for securities violations related to the sale of $1.2 billion worth of mortgage backed securities (MBS) to its members. The NCUA lawsuit also alleges that Goldman misrepresented the mortgage backed securities (MBS) that it sold to its member credit unions that suffered massive losses leading to their demise and is seeking $491 in compensatory damages. Some of the credit unions that failed due to MBS losses were Western Corporate Federal Credit Union (WesCorp) and the U.S. Central Federal Credit Union, two of the largest countrywide.

If you have suffered losses in mortgage backed securities or other complex structured investment products, please contact our securities law firm at 1-800-259-9010 for a confidential, no obligation consultation.

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