According to the Wall Street Journal, financial giants Goldman Sachs and TCW Asset Management, a Société Générale unit, are currently being sued by German Bank Landesbank Baden-Wurttemberg (LBBW).
In the lawsuit, LBBW accuses both firms of fraud, negligence and wrongful conduct when marketing, managing and selling the bank a complex structured financial product. LBBW claims that after being misled by Goldman (the placement agent) and TCW (the investment adviser) into buying notes in collateralised debt obligation (CDO) Davis Square Funding VI, the bank lost at least $37 million.
LBBW’s alleges that Goldman and TCW provided misleading information in relation to the CDO product’s risk. The lawsuit – filed in the US District Court in Manhattan this week – states that the notes were presented by Goldman and TCW as being “safe, secure and nearly risk free”, but that the companies had knowledge of early payment defaults (also known as ‘kickouts’).
In a further allegation, LBBW claims that Goldman and TCW were betting on the product to fail by backing billions of credit default swaps.
Huge expenses in litigation fees and damage payments are generally incurred when huge financial companies such as those named in this case clash over deals, investments and negotiations. This is why most of them take out professional indemnity insurance, in order to cover the costs of a potential settlement.