Compliance February 11, 2009

Pension Program Sues over Mortgage Security Offering

February 11, 2009 (PLANSPONSOR.com) - A pension fund has filed a federal court lawsuit against Goldman Sachs and other defendants with charges they filed false or misleading securities registration documents about a mortgage-backed securities offering.
Reported by

A news release from the New York law firm of Bernstein Litowitz Berger & Grossmann said the Mississippi Public Employees Retirement System filed the suit on behalf of purchasers of GS Mortgage Securities Corp. Mortgage Pass-Through Certificates or Asset-Backed Certificates.

The suit alleged that the issuers of the securities offering included the false or misleading information in a Securities and Exchange Commission Registration Statement and in Prospectus Supplements issued during 2006.

class=”textbodyblack3″> Named defendants included Goldman Sachs Mortgage Co., Goldman Sachs Mortgage Securities Corp., Goldman Sachs & Co., McGraw-Hill Cos., Moody’s Investors Service Inc., and Fitch Inc.

class=”textbodyblack3″ itxtvisited=”1″> The suit charged that the disputed registration material statements included those about:

  • the underwriting standards used by the loan originators;
  • the standards and guidelines used by GS Mortgage when evaluating and acquiring the loans;
  • the appraisal standards used to value the properties collateralizing the loans, and the corresponding loan-to-value ratios of the loans;
  • the credit enhancement supporting the loan securitization process; and
  • the pre-established ratings assigned to each tranche of certificates issued pursuant to the offering documents.

class=”textbodyblack3″> The complaint alleged that credit rating agencies put parts of the offering on a negative watch list when the loans used to secure the offering underperformed, which the suit claimed has meant that securities holders get less cash flow than they would under normal circumstances and receive it on a less timely basis.

class=”textbodyblack3″> The complaint in Public Employees’ Retirement System of Mississippi v. Goldman Sachs Group Inc.,   SDNY., No. 1:09-cv-01110-UA, is available here .

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