[ by Howard Haykin ] A lawsuit against Goldman Sachs, involving several CDO transactions, got the go-ahead from a Manhattan federal judge on Thursday.  The plaintiffs are Goldman shareholders who claim that the firm concealed conflicts of interest when selling these CDOs - the fallout from which caused Goldman's stock price to drop. The lawsuit consolidates claims from Goldman shareholders who said the firm failed to disclose it was betting against its clients by taking short positions in 4 CDO transactions it sold to investors.  U.S. District Judge Paul Crotty ruled that investors could proceed with their claims that Goldman should have disclosed those positions to clients, as well as hedge fund Paulson & Co's alleged role in hand-picking risky subprime mortgages that went into one of the CDOs, highly publicized Abacus. According to the complaint, Goldman's actions ... caused its shares to trade at inflated levels.  The shares fell 12.8% on 4/16/10, wiping out more than $12 billion of value, after the SEC filed a civil fraud lawsuit against Goldman over the Abacus CDO.  Goldman eventually settled the lawsuit for $550 million. The shares fell another 3% on 4/25-26/10, when the U.S. Senate released internal emails from Goldman reflecting its practice of taking short positions against securities sold to investors.  It fell another 2% on 6/10/10, when the SEC announced an investigation into the Hudson CDO transaction. Lawyers for Goldman argued ... that the lawsuits and investigations themselves caused the stock price to drop, and not the firm's alleged omissions.  Crotty did not accept Goldman's arguments, noting the following in his written decision:

"... these suits and investigations can more appropriately be seen as a series of 'corrective disclosures', because they revealed Goldman's material misstatements - and indeed pattern of making misstatements - and its conflict of interest."

Crotty did dismiss a separate claim that the company should have disclosed Wells notices received by Fabrice Tourre and Jonathan Engol, 2 employees involved in the Abacus transaction.   Crotty reasoned that, since Wells notices do not always lead to litigation, they therefore do not necessarily need to be disclosed to shareholders. Also named in the lawsuit are Goldman CEO Lloyd Blankfein, CFO David Viniar and COO Gary Cohn. The Case Is: In re Goldman Sachs Group Inc Securities Litigation, in the U.S. District Court for the Southern District of New York, no. 10-3461. [Reuters, 6/21/12]