Insurers continue to file lawsuits against large investment banks over losses taken during the housing market collapse, as Liberty Mutual Insurance Co. filed suit against Goldman Sachs; and Allstate announced a lawsuit against Morgan Stanley.
In their complaint, Liberty Mutual and several subsidiaries say Goldman Sachs 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.
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 similar practices by Goldman were already documented in a report to a U.S. Senate subcommittee in April, according to the suit.
The plaintiffs 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.
Goldman Sachs says the complaint is without merit.
The insurers are looking for a trial by jury and damages of more than $100 million.
Allstate, meanwhile, has added to its tally of New York lawsuits seeking to recover $104 million in investment losses on residential mortgage-backed securities with its filing against Morgan Stanley.
"We allege that the offering documents contained untrue statements and omitted material facts," says Allstate in an email.
The Northbrook, Ill.-based insurer has filed similar lawsuits against Countrywide, Citigroup, Deutsche Bank, Credit Suisse, Merrill Lynch and J.P. Morgan Chase.
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