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Allstate Sues Goldman Sachs Over Mortgage Securities

Allstate Corp. is suing Goldman Sachs Group Inc., claiming the broker fraudulently sold it more than $123 million in mortgage-backed securities in 2006 and 2007,...
August 23, 2011

Allstate Corp. is suing Goldman Sachs Group Inc., claiming the broker fraudulently sold it more than $123 million in mortgage-backed securities in 2006 and 2007, before the housing market collapse sent the investments' value plunging. The insurer claims in a lawsuit filed in New York that the documents Goldman provided at the time "contained untrue statements and omitted material facts" about the mortgages underlying the investments.

"Goldman knew these types of securities were, to use Goldman's own words, 'junk,' 'dogs,' 'crap' and 'lemons,'" according to the complaint. Forbes magazine reports the insurer said Goldman Sachs' foreknowledge was evident in information from previous investigations of Goldman, including the SEC's civil fraud case and the Financial Crisis Inquiry Commission. The insurer also filed suit against Bank of America's Countrywide Financial and Merrill Lynch units, Morgan Stanley, JPMorgan Chase, Citigroup, Credit Suisse and Deutsche Bank.

Allstate's complaint against Goldman alleges that the New York-based bank claimed the mortgages backing the securities it sold were low-risk and followed strict underwriting criteria. "In fact, Goldman knew that lenders had systematically abandoned the stated underwriting guidelines, producing loans without regard to the likelihood of repayment," the complaint says. Goldman paid $550 million last year to settle similar civil fraud charges brought by the Securities and Exchange Commission. That was the largest penalty against a Wall Street firm in SEC history. Goldman did not admit or deny wrongdoing.

Read more on the mortgage security battle: Allstate Sues Goldman Sachs (Forbes 8/17/11)
 
Read more on the Goldman mortgage security controversy: Misleading Investors Is Like Robbing a 7-11 (Forbes 4/14/11)