Potential MBS Exposure At Goldman Raised To $15.8 Billion
As investors jockey to settle their mortgage securities claims or file their lawsuits prior to the running of the statute of limitations, Goldman Sachs Group Incorporated has raised its potential lawsuit exposure to more than $15.8 billion in a recent filing with the U.S. Securities and Exchange Commission (SEC), according to Reuters. This marks a hefty 30 times increase from the original estimate of $485 million projected only three months ago. A considerable portion of the increase is the result of a Federal Housing Finance Agency (FHFA) lawsuit filed in the amount of $11.1 billion for misrepresentations regarding mortgage backed securities (MBS). There were similar lawsuits filed against sixteen other financial firms by the FHFA.
Goldman was quick to point out that these numbers do not reflect the amount of money the firm intends to lose. That amount is projected to be $2.6 billion, up from $2 billion. According to the article, Goldman has entered into a tolling agreement with some plaintiffs so that meaningful settlement negotiations can continue with hopes of resolution of many claims. A tolling agreement between the parties is an agreement whereby Goldman agrees that it will not use the statute of limitations as a defense, thereby stopping it from running.
HSH Nordbank, Norges Bank Investment Management and IKB Deutsche Industriebank AG, American International Group Incorporated and Manulife Financial Corporation's John Hancock were other firms that have indicated that they would be filing lawsuits to recover losses related to misrepresentations made regarding investments in mortgage backed securities.
This amended filing by Goldman comes on the heels of pressure from the SEC for a more accurate disclosure about potential losses from lawsuits. The U.S. Securities and Exchange Commission had requested information from Goldman, Morgan Stanley, JP Morgan Chase, Bank of America, Citigroup Incorporated and Wells Fargo regarding the amounts sought in lawsuits and the projected losses. The increased pressure from the SEC on firms is related to a situation involving Bank of America. It was reported that lawyers with the firm were aware of a potential lawsuit by American International Group as early as January 2011 however, the firm did not report it to the SEC until it was filed on August 8, 2011. The lawsuit was for $10 billion.
These cases began originally when Rajaratnam and his firm, Galleon Management LP, were named in a huge insider trading probe that involved some 29 individuals, firms and over 15 publicly traded companies generating over $90 million in illegal gains or avoided losses.