NU Online News Service, July 11, 4:56 p.m. EDT
Liberty Mutual Insurance Co. and several subsidiaries have filed a lawsuit against Goldman Sachs & Co. claiming the broker misled them in a preferred stock offering for Federal Home Loan Mortgage Corp. (Freddie Mac) late in 2007.
Liberty Mutual invested $37.5 million in the offering. The investment is "virtually worthless," says the complaint, which alleges Goldman violated state and federal securities laws.
Meanwhile, Goldman Sachs "had taken net short position on other securities backed by subprime residential mortgages that generated $3.7 billion in profits for the firm in 2007 alone," the suit alleges. This and other deceptive practices by Goldman have already been documented in a report to a U.S. Senate subcommittee in April, according to the suit.
The plaintiffs—Liberty Mutual, Peerless Insurance Co., Safeco Corp., Liberty Life Assurance Co. of Boston, and Employers Insurance Co. of Wausau—say Goldman "knew or recklessly ignored that Freddie Mac did not meet its regulatory capital requirements" and that the corporation chartered by Congress for market liquidity purposes "remained severely undercapitalized even after the sale of the preferred stock."
Goldman was a lead underwriter of the offering of 240 million shares of preferred stock, which raised about $5.9 billion.
Liberty Mutual and its companies say the offering circular from Goldman was "false and misleading" because it did not outline Freddie Mac's true capitalization. Freddie Mac was put into conservatorship in September 2008.
The broker says the complaint is without merit.
The insurers are looking for a trial by jury and damages of more than $100 million.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.