Goldman Sachs has been accused of short-selling risky subprime securities making billions of dollars of profit at the same time as causing a pension fund client to invest in similar products.
A writ lodged in the High Court by Dutch pension fund Vervoer alleges that Goldman’s proprietary trading desk was short-selling mortgage-backed securities “on a very large scale to profit from falling prices” in the middle of 2007.
Vervoer is suing Goldman Sachs Asset Management for 250 million (£160 million) for negligence. Goldman is contesting the case. The claim states that Goldman Sachs Asset Management was Vervoer’s fiduciary investment manager responsible for allocating the pension fund’s investments with other fund mangers which Goldman selected and appointed.
In July 2007, Goldman caused 276 million of Vervoer’s money to be invested an unnamed third party fund which had significant holdings of subprime mortgage-backed securities (MBS).
The claim alleges that “the Trading and Principal Investments Group [Goldman’s prop trading desk] initiated a strategy of short-selling MBS so as to profit Goldman Sachs Group from falls in the market for MBS during the subprime crisis that was already under way.”
Goldman said Vervoer’s subprime exposure was made by another asset management company over which it had no influence or involvement in investment decisions. It said it “had acted prudently and complied with our mandate.”
