Goldman Sachs Group Inc. has urged the U.S. Supreme Court to throw out a mortgage securities class-action lawsuit that it said could cost Wall Street tens of billions of dollars.
The bank is challenging a September 6 decision by the 2nd U.S. Circuit Court of Appeals in New York allowing the lawsuit, which accuses it of misleading investors about the securities' risks.
That court let the NECA-IBEW Health & Welfare Fund, which owned some mortgage-backed certificates underwritten by Goldman, sue on behalf of investors in certificates backed by mortgages from the same lenders, but which the fund did not own itself.
Circuit Judge Barrington Parker wrote for a three-judge panel that the NECA-IBEW fund could pursue these claims because they "implicated the same set of concerns" as its own.
Goldman's lawyers argued that the 2nd Circuit created a direct conflict with the federal appeals court in Boston, which in a similar case involving Japan's Nomura Asset Acceptance Corp, found in January 2011 that a plaintiff could not pursue claims on behalf of a class that it could not bring by itself.
The stakes are "difficult to overstate," according to an October 26 brief by Theodore Olson, a partner at Gibson, Dunn & Crutcher and former U.S. solicitor general, who represents Goldman.
"In the context of mortgage-backed securities litigation in which this case arises, the decision will effectively increase by tens of billions of dollars the potential liability that financial institutions face in this and similar class actions," he wrote. "Moreover, the new standard threatens to expand the scope of class actions in many other areas of the law."
A split among federal courts often increases the chance that the Supreme Court will accept an appeal.
The NECA-IBEW fund serves electrical workers and is based in Decatur, Illinois. It has an opportunity to respond to Goldman's filing. If the Supreme Court accepted Goldman's appeal, no decision would likely be issued before the middle of 2013.
Joseph Daley and Arthur Leahy, partners at Robbins Geller Rudman & Dowd who represent the NECA-IBEW fund, did not immediately respond on Friday to requests for comment.
JPMORGAN SEEKS HOLD ON SEPARATE CASE
Goldman and its rivals have faced thousands of lawsuits by investors seeking to recoup losses on mortgage securities.
Investors typically claim they were misled about the risks relating to the underlying home loans, most of which were made before or as the U.S. housing slump took hold in 2007.
The 17 offerings in the NECA-IBEW lawsuit dated from 2007, were sold under the same registration statement, and contained loans from many mortgage lenders.
According to court papers, the fund had bought certificates from two Goldman-led offerings that contained loans from GreenPoint Mortgage Funding, later part of Capital One Financial Corp., and Wells Fargo & Co.
The 2nd Circuit let the NECA-IBEW fund represent investors in these and five other offerings backed by GreenPoint or Wells Fargo loans. It said the 10 other offerings were too different.
On Friday, JPMorgan Chase & Co. urged a Manhattan federal judge to put a similar case against it on hold while the Supreme Court addresses Goldman's appeal. That case is led by the Fort Worth Employees' Retirement Fund in Texas.
Goldman's appeal is Goldman Sachs & Co et al v. NECA-IBEW Health & Welfare Fund et al, U.S. Supreme Court, No. 12-528.
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