[ by Howard Haykin ]

A federal appeals court in New York revived a lawsuit filed on behalf of investors of mortgage-backed certificates underwritten by the Goldman Sachs Group Inc, who claim they were misled by the firm about the risks associated with mortgage securities offerings.  The decision, handed down by the 2nd U.S. Circuit Court of Appeals in New York, said that lead plaintiff NECA-IBEW Health & Welfare Fund, which owned some of the mortgage-backed certificates in question, may pursue claims on behalf of a class of investors in certificates backed by mortgages originated by the same lenders.  The court further said that the fund need not allege an out-of-pocket loss to pursue a claim that an illiquid security had lost value. 

Thursday's decision reversed parts of rulings by U.S. District Judge Miriam Goldman Cedarbaum in Manhattan, and reinstates claims related to 7 securities offerings in 2007. 

Needless to say, this is a setback for Goldman ...  which like its rivals, faces hundreds or thousands of lawsuits by mortgage debt investors - each typically seek to recoup losses on securities they bought by claiming they were misled about the risks. 

Joseph Daley, a lawyer for the NECA-IBEW fund, did not immediately respond to requests for comment. The fund serves electrical workers and is based in Decatur, IL.  In its December 2008 lawsuit, the NECA-IBEW fund contended that Goldman's offering documents for 17 securities offerings contained false and misleading information about underwriting guidelines of the mortgage lenders, property appraisals associated with the loans, and the associated risks.

The case is NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co et al, 2nd U.S. Circuit Court of Appeals, No. 11-2762.   [Reuters, 9/6/11]