Goldman Sachs, Citigroup Sued Over Subprime Loans

By William McQuillen – Jul 12, 2010
Goldman Sachs Group Inc., Citigroup Inc. and Morgan Stanley were sued by a Boston area-based fund seeking reimbursement for losses related to subprime loans, according to lawyers for the firm.

Cambridge Place Investment Management Inc., founded by founded by ex-Goldman Sachs Group bankers Martin Finegold and Robert Kramer, lost more than $1.2 billion as a result of the banks’ untrue statements, the company claims in a complaint filed July 9 in state court in Massachusetts.

The banks sold securities backed by mortgages that came from a “small group of now notorious subprime mortgage originators,” used faulty appraisals, accepted misleading information in loan applications, and violated their own standards for underwriting, the firm claims in the lawsuit. The banks offered or sold $2.4 billion of residential mortgage- backed securities using untrue statements, according to the lawsuit.

“The Wall Street banks conducted inadequate due diligence and failed to satisfy their own responsibilities,” Cambridge Place said in the lawsuit.

The bundling of the riskiest type of mortgages into securities played a role in turning the U.S. housing slump into a global recession as foreclosures deflated bond values and toppled Wall Street firms including Lehman Brothers Holdings Inc.

The banks created an “environment of improper lending practices,” keeping personnel on site at the mortgage lenders to monitor the loan underwriting business, according to the lawsuit.

Representatives from Citigroup, Goldman Sachs and Morgan Stanley declined to comment on the lawsuit.

A copy of the complaint was provided by an attorney for Concord, Massachusetts-based Cambridge Place Investment Management. It wasn’t immediately available on the court’s electronic docket.

The case is Cambridge Place Investment Management Inc. v. Morgan Stanley, 10-2741, Suffolk Superior Court (Boston).