Judge allows Detroit pension fund class action against Goldman Sachs to proceed

The plaintiffs accused Goldman Sachs of misrepresenting the standards used to qualify borrowers for mortgage loans

To be a police officer or fire fighter in Detroit, you have to be tough. But are they tough enough to stand up to the behemoth that is Goldman Sachs? Following a federal judge’s March 27 ruling, we may now have the court case to find out.

U.S. District Judge Miriam Cedarbaum ruled that a proposed class action lawsuit against Goldman Sachs brought by Detroit’s police and fire department system over mortgage-backed securities may proceed as planned. In the suit, filed in 2010, the plaintiffs accused Goldman Sachs of misrepresenting the standards used to qualify borrowers for mortgage loans, which were later pooled into securities and bought by the fund.

According to the lawsuit, the systems’ pension fund purchased roughly $1.8 million of the securities through a mortgage loan trust created by Goldman Sachs in 2007. Reuters reports that Goldman issued more than $790 million of securities through the trust before it collapsed in value during the 2007-2008 financial crisis.

In her ruling, Cederbaum agreed that documents Goldman provided to the systems were “affirmatively misleading” and denied Goldman’s bid to have the suit dismissed. Goldman had attempted to argue that the underwriting policies were only guidelines and lenders could deviate from them, but Cederbaum said that exceptions to standards were not the same as full abandonment of them.

However, despite growing legal bills, shareholders have restored confidence in the recently scandal-riddled financial institution. In 2014, Goldman CEO Lloyd Blankstein is set to regain his spot as the highest-earning CEO by salary among U.S. financial institutions. His $23 million pay package surpassed both JPMorgan Chase’s Jamie Dimon and Wells Fargo’s John Stumpf, restoring Goldman to the top spot after a four year absence.

 

For more on financial institutions in legal news, check out these InsideCounsel articles:

Bank of America settles with Fannie Mae and Freddie Mac for $9.3 billion

Goldman CEO’s salary regains top spot among Wall Street heads

Charges filed in cybercrime ring that hit 14 different financial institutions

Federal Reserve Bank of New York president criticizes Wall Street culture

Assistant Editor

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Zach Warren

Zach Warren is Assistant Editor of InsideCounsel magazine, where he oversees online content submissions and administers InsideCounsel's enewsletters. Zach specializes in new media and multimedia...

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