Bloomberg.com has reported that Goldman Sachs Group Inc.’s $2 billion Hudson Mezzanine collateralized debt obligation, sold in 2006, is now the target of a probe by the SEC.
According to the article, the Hudson Mezzanine 2006-1 CDO contained credit default swaps related to $2 billion in subprime mortgage-backed securities. Apparently, Goldman chose the assets in the deal and was the only investor buying credit protection on the entire transaction. The CDO imploded within two years and Goldman reaped huge rewards while other investors sustained huge losses.
The selling of these securities by Goldman and others in Wall Street raises significant ethical and legal questions of whether or not the firms who where selling these instruments to their clients knew that they would fail. Did the firms give full disclosure about market conditions and known risks? Did they adequately disclose material facts about the mortgage-backed securities associated with the Hudson deal?
According to Pratt H. Davis, a partner at Page Perry, “aside from the ethical and moral issues involved, these firms could face significant legal liability on several fronts if they had knowledge or reason to believe the investments would fail and failed to disclose this information to the investors.”
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing institutional and corporate investors in CDO cases. For further information, please contact us.