Goldman Sachs to be sued by German bank over investment loss

6 October 2010

A law suit has been launched against Goldman Sachs by a German bank which claimed it lost money on an investment after being misadvised.

Landesbank Baden-Wuerttemberg (LBBW) has claimed it was misinformed over the risk attached to a collateralized debt obligation (CDO) known as Davis Square Funding VI.

In the filing the German institution stated that Goldman Sachs represented the CDOs as “safe, secure and nearly risk free” when selling the products in 2006.

However, Goldman is accused of misleading the LBBW - the German claimed this is shown by Goldman investing in credit default swaps in case CDOs, such as Davis Square Funding VI, would fail.

In the papers, which were quoted by Bloomberg, LBBW said: “Goldman knew at the highest levels of its organization that its representations to LBBW Luxemburg that the notes merited triple-A ratings and were high grade were blatantly false.

“Goldman committed fraud and, or, was negligent in marketing and selling the notes to LBBW Luxemburg.”

Goldman Sachs worked as the placement agent and the TCW Group as investment advisor on the transaction.

TCW released a statement refuting the claims made by LBBW and saying any allegations that it acted inappropriately were “without merit.”

By Jim Ottewill

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