A federal appeals court has upheld a district court’s dismissal of a securities fraud case involving the sale of a collateralized debt obligation (CDO). The CDO, named Davis Square, was collateralized by residential mortgage-backed securities and underwritten by Goldman Sachs in 2006 (“Goldman Sachs Wins Appeal of Ruling Dismissing CDO Suit,” by Bob Van Voris, Bloomberg).
The lawsuit, filed by Landesbank Baden-Wuerttemberg of Stuttgart, Germany, alleged that Goldman Sachs committed fraud in the sale by representing the CDO as a “High Grade Structured Product CDO” backed by investment-grade mortgage-backed securities. Goldman Sachs and co-defendant TCW Asset Management Co. sold the bank two Davis Square notes totaling $37 million.
U.S. District Judge William Pauley III dismissed the case, ruling that the bank’s complaint did not contain sufficient fraud allegations against Goldman Sachs or TCW. The bank appealed and the Second Circuit Court of Appeals upheld Judge Pauley’s decision.