BASIS Capital's Yield Alpha Fund (BYAFM) filed a securities fraud lawsuit against Goldman Sachs, alleging the US banking giant forced the fund into insolvency by misrepresenting the market about a collaterised debt obligation (CDO).
BYAFM said it invested $US42 million ($50.5 million) in a triple A-rated tranche of the Timberwolf CDO in June 2007 after Goldman told it that the market for such securities had stabilised and an investment in the securities at that time would be a good entry point into that market.
These representations were knowingly false, BYAFM said.
BYAFM invested another $US36 million in the double A-rated tranche of the Timberwolf CDO.
Within two and a half weeks of the investments being made, Goldman began to make significant margin calls of BYAFM, forcing it into insolvency, the fund said.
BYAFM is now seeking damages of over $US56 million plus interest and punitive damages in the US District Court for the Southern District of New York.
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Sydney-based Basis Capital advises the Cayman Islands-registered BYAFM which suspended redemptions in July 2007.
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