Liberty Mutual Insurance Company has sued Goldman Sachs & Co., alleging that the investment bank misled the insurer about two now-worthless preferred stock offerings of the Federal National Mortgage Association (Fannie Mae).
The securities fraud action filed in U.S. District Court in Massachusetts claims Goldman Sachs made "materially misleading statements and omissions" in connection with $62.5 million the insurer invested in the stock offerings, which were underwritten by the bank.
Liberty Mutual seeks to recover damages from Goldman Sachs' "fraudulent conduct," according to court documents.
A spokesperson for the insurer said it does not comment on pending litigation.
Liberty Mutual acquired $30 million of preferred stock in one offering in September 2007 and another $32.5 million in an offering in December 2007, according to the lawsuit.
Goldman Sachs recognized a real estate collapse beginning in 2006 and began to sell its own exposure to the real estate market while betting against it, Liberty Mutual said in its complaint. In the meantime, the bank was underwriter for Fannie Mae's preferred stock offerings, the suit alleges.
With its knowledge of Fannie Mae, Goldman Sachs "knew or recklessly disregarded" the value of Fannie Mae's investments in mortgage-backed securities, its loan loss reserves and its deferred tax asset, the lawsuit states.
