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Goldman Sachs, through subsidiaries and affiliates, may have misrepresented the risk profile of the mortgages and assets underlying the GS Mortgage Pass-Through Certificates.
Investigation Source (Case #08-cv-10783)
- Nationwide
Investigation Scope
Category Information
Investigation Topics
- Investments
- Registration Statement
- Mortgage-Backed Securities
- Rating Agency
- Underwriting Action
Product or Service
- Mortgage Pass-Through Certificates
Injury Type
- Monetary Loss
Investigation Details
This is a securities class action lawsuit against Goldman Sachs, several of its subsidiaries and affiliates including GS Mortgage Securities Corp., and certain officers and directors. The class action lawsuit also names the rating agencies that rated the investments at issue.
GS Mortgage, a subsidiary of Goldman Sachs, engages in securitizing mortgage assets and related activities.
Specifically, the complaint alleges that on January 31, 2007, defendants caused a Registration Statement to be filed with the SEC in connection with and for the purpose of issuing billions of dollars of Mortgage Pass-Through Certificates and Asset Pass-Through Certificats (the Certificates"). The Certificates were supported by pools of mortgage loans.
According to the class action complaint, the Registration Statement included false statements and/or omissions about:
(i) the underwriting standards purportedly used in connection with the origination of the underlying mortgage loans;
(ii) the maximum loan-to-value ratios used to qualify borrowers;
(iii) the appraisals of properties underlying the mortgage loans; and
(iv) the debt-to-income ratios permitted on the loans.
As a result, the Certificates sold to plaintiff and the Class were secured by assets that had a much greater risk profile than represented in the Registration Statement. In this way, Goldman Sachs was able to obtain superior ratings on the tranches or classes of Certificates, when in fact these tranches or classes were not equivalent to other investments with the same credit ratings.
By early 2008, the truth about the performance of the mortgage loans that secured the Certificates began to be revealed to the public, increasing the risk of the Certificates receiving less absolute cash flow in the future and the likelihood that investors would not receive it on a timely basis. The credit rating agencies also began to put negative watch labels on the Certificate tranches or classes, ultimately downgrading many. As an additional result, the Certificates are no longer marketable at prices anywhere near the price paid by plaintiff and the Class and the holders of the Certificates are exposed to much more risk with respect to both the timing and absolute cash flow to be received than the Registration Statement/Prospectus Supplements represented.
The certificates at issue in this case are Mortgage Pass-Through Certificates, Series 2007-FM2; Mortgage Pass-Through Certificates, Series 2007-HE1; Mortgage Pass-Through Certificates, Series 2007-HE2; Mortgage Pass-Through Certificates, Series 2007-3F; Mortgage Pass-Through Certificates, Series 2007-OA1; Mortgage Pass-Through Certificates, Series 2007-4F; Mortgage Pass-Through Certificates, Series 2007-HSBC1; Mortgage Pass-Through Certificates, Series 2007-4; Mortgage Pass-Through Certificates, Series 2007-OA2; Mortgage Pass-Through Certificates, Series 2007-5F; Asset-Backed Certificates, Series 2007-3; Asset-Backed Certificates, Series 2007-4; Asset-Backed Certificates, Series 2007-5; Asset-Backed Certificates, Series 2007-6; Asset-Backed Certificates, Series 2007-7; Asset-Backed Certificates, Series 2007-8; Asset-Backed Certificates, Series 2007-10.
GS Mortgage, a subsidiary of Goldman Sachs, engages in securitizing mortgage assets and related activities.
Specifically, the complaint alleges that on January 31, 2007, defendants caused a Registration Statement to be filed with the SEC in connection with and for the purpose of issuing billions of dollars of Mortgage Pass-Through Certificates and Asset Pass-Through Certificats (the Certificates"). The Certificates were supported by pools of mortgage loans.
According to the class action complaint, the Registration Statement included false statements and/or omissions about:
(i) the underwriting standards purportedly used in connection with the origination of the underlying mortgage loans;
(ii) the maximum loan-to-value ratios used to qualify borrowers;
(iii) the appraisals of properties underlying the mortgage loans; and
(iv) the debt-to-income ratios permitted on the loans.
As a result, the Certificates sold to plaintiff and the Class were secured by assets that had a much greater risk profile than represented in the Registration Statement. In this way, Goldman Sachs was able to obtain superior ratings on the tranches or classes of Certificates, when in fact these tranches or classes were not equivalent to other investments with the same credit ratings.
By early 2008, the truth about the performance of the mortgage loans that secured the Certificates began to be revealed to the public, increasing the risk of the Certificates receiving less absolute cash flow in the future and the likelihood that investors would not receive it on a timely basis. The credit rating agencies also began to put negative watch labels on the Certificate tranches or classes, ultimately downgrading many. As an additional result, the Certificates are no longer marketable at prices anywhere near the price paid by plaintiff and the Class and the holders of the Certificates are exposed to much more risk with respect to both the timing and absolute cash flow to be received than the Registration Statement/Prospectus Supplements represented.
The certificates at issue in this case are Mortgage Pass-Through Certificates, Series 2007-FM2; Mortgage Pass-Through Certificates, Series 2007-HE1; Mortgage Pass-Through Certificates, Series 2007-HE2; Mortgage Pass-Through Certificates, Series 2007-3F; Mortgage Pass-Through Certificates, Series 2007-OA1; Mortgage Pass-Through Certificates, Series 2007-4F; Mortgage Pass-Through Certificates, Series 2007-HSBC1; Mortgage Pass-Through Certificates, Series 2007-4; Mortgage Pass-Through Certificates, Series 2007-OA2; Mortgage Pass-Through Certificates, Series 2007-5F; Asset-Backed Certificates, Series 2007-3; Asset-Backed Certificates, Series 2007-4; Asset-Backed Certificates, Series 2007-5; Asset-Backed Certificates, Series 2007-6; Asset-Backed Certificates, Series 2007-7; Asset-Backed Certificates, Series 2007-8; Asset-Backed Certificates, Series 2007-10.
Defendant Details
| Name (Stock Symbol) | Brief Description |
|---|---|
| McGraw-Hill Companies, Inc., The (MHP) | The McGraw-Hill Companies, Inc. provides information services and products to the financial services, education, and business information markets. It operates under the Standard & Poors brand, which provides investment research, market indices, credit ratings, financial data, and fixed income research and analysis to investors, corporations, governments, financial institutions, investment managers, and advisors. |
| Moodys Investor Services | Moodys Investor Services, a subsidiary of Moodys Corporation, publishes credit ratings on a range of debt obligations, including various corporate and governmental obligations, structured finance securities, and commercial paper programs, as well as the entities that issue such obligations. |
| Fitch Ratings Ltd. | Fitch Ratings rates the credit quality of financial instruments. Fitch Ratings is a majority-owned subsidiary of Fimalac, S.A. |
| Goldman Sachs Group, Inc., The (GS) | The Goldman Sachs Group, Inc., together with its subsidiaries, provides various investment banking, securities, and investment management services to corporations, financial institutions, governments, and high-net-worth individuals worldwide. |
| GS Mortgage Securities Corporation | GS Mortgage Securities Corporation, a wholly owned subsidiary of The Goldman Sachs Group, is the corporate vehicle of Goldman Sachs involved with securitizing assets and home loans. |