Don’t get too excited, this move by New York City and State to sue lead manager Goldman, 25 other underwriters and accounting firms over a Countrwide stock offering is routine securities fraud, in this case making misrepresentations about the company’s prospects. No one has yet to develop a legal theory to go after Goldman for the move that has many offended, being net short subprime related debt while continuing to sell them to investors. And the latter is unlikely to go anywhere (saver perhaps serving as fodder for Congressional investigations) because that action didn’t violate any securities laws.
However, the Countrywide deal raises an interesting question. Banks like Bank of America are going to the market and will of course put the best possible spin on the outlook for their business. Wonder if this will be the breeding ground for further litigation.
Goldman Sachs Group Inc. and 25 other underwriters of Countrywide Financial Corp., the biggest U.S. mortgage lender, were named as defendants in a suit by New York state and city officials for allegedly making misleading statements about the company’s prospects.
New York City Comptroller William Thompson Jr. and state Comptroller Thomas DiNapoli added the 26 securities firms, two accounting companies and additional Countrywide officers and directors as plaintiffs in the investor securities-fraud lawsuit filed last year in federal court, according to a statement issued today by Thompson’s office.
The state and city pension funds’ combined losses due to Countrywide’s declining stock price were as much as $100 million, Thompson said on Nov. 30.