Goldman Sachs Faces Lawsuit Over Hudson CDOs

First it was Abacus CDOs, and now it’s a Hudson CDO class-action lawsuit plaguing Goldman Sachs. The Hudson CDOs, called Hudson Mezzanine Funding 1 and 2, involve $1.2 billion of mortgage-backed securities that were packaged and sold in 2006 and 2007.

According to the lawsuit, Goldman engaged in a “heads we win, tails you lose” exercise with the Hudson CDOs by failing to disclose to investors that the securities were structured by Goldman to allow the investment firm to profit from its own short positions in mortgage-related securities.

The Hudson CDOs lost value shortly after they were offered. By the end of 2007, $280 million of the securities underlying the CDOs were downgraded. By the middle of the next year, the senior portions of the securities had been downgraded to junk status. Meanwhile, investors became saddled with huge financial losses.

Two former senior Goldman officials, Peter L. Ostrem and Darryl K. Herrick, also are named in the Hudson lawsuit for leading in the structuring and selling of the securities associated with the CDO deals.

Earlier this summer, Goldman Sachs settled civil fraud charges with the Securities and Exchange Commission (SEC) over its marketing of a collateralized debt obligations package known as Abacus 2007-ACI.

In settling the matter, Goldman paid a $550 million fine – the largest fine ever levied by the SEC on a U.S. financial institution. Goldman also acknowledged that its marketing materials for Abacus contained incomplete information.

If you experienced significant losses in Hudson CDO securities, contact us to tell your story.