Goldman Sachs, Citigroup Sued Over Subprime Loans

by Bloomberg Business Week

July 12 (Bloomberg) — Goldman Sachs Group Inc., Citigroup Inc., Morgan Stanley and dozens more bank and brokerages were sued by a Boston area-based fund seeking reimbursement for losses related to subprime loans.

Cambridge Place Investment Management Inc., founded by ex- Goldman Sachs Group bankers Martin Finegold and Robert Kramer, lost more than $1.2 billion as a result of the banks’ untrue statements, according to a copy of the complaint filed July 9 in state court in Massachusetts.

The banks sold securities backed by mortgages that came from a “small group of now notorious subprime mortgage originators,” used faulty appraisals, accepted misleading information in loan applications, and violated their own standards for underwriting, the firm said in the lawsuit. The banks offered or sold $2.4 billion of residential mortgage- backed securities using untrue statements, according to the lawsuit.

“The Wall Street banks conducted inadequate due diligence and failed to satisfy their own responsibilities,” Cambridge Place said in the lawsuit.

The bundling of the riskiest type of mortgages into securities played a role in turning the U.S. housing slump into a global recession as foreclosures deflated bond values and toppled Wall Street firms including Lehman Brothers Holdings Inc.

‘Improper Lending’

The banks created an “environment of improper lending practices,” keeping personnel on site at the mortgage lenders to monitor the loan underwriting business, according to the lawsuit.

The suit also names Bank of America Corp., Merrill Lynch & Co., UBS AG, JPMorgan Chase & Co., Barclays PLC, Credit Suisse Group AG, Deutsche Bank AG, HSBC Holdings PLC and dozens of others.

Representatives from Citigroup, Goldman Sachs, JPMorgan, Barclays, Bank of America and Morgan Stanley and Deutsche Bank declined to comment on the lawsuit. Representatives from the others couldn’t be reached after business hours.

Bank representatives who allegedly offered or sold securities to Cambridge Place included Scott Eichel, RBS Securities Inc.’s co-head of its mortgage and asset backed securities business, when he had been at Bear Stearns Cos., and Greg Lippman, who helped create the market for betting against subprime mortgage bonds in 2005 and then profited along with hedge funds when home prices declined and defaults soared to records two years later.

Eichel, Lippman

Eichel didn’t immediately respond to an e-mail seeking comment after regular business hours. A voice message left for Lippman after business hours wasn’t returned.

The filing wasn’t immediately available on the court’s electronic docket and was provided by an attorney for Concord, Massachusetts-based Cambridge Place Investment Management.

The case, according to the court records, is Cambridge Place Investment Management Inc. v. Morgan Stanley, 10-2741, Massachusetts Superior Court, Suffolk County (Boston).

article source.

bookmark bookmark bookmark bookmark bookmark bookmark bookmark bookmark bookmark bookmark bookmark bookmark
tabs-top  banner ad

Leave a Reply

You must be logged in to post a comment.