Basis Capital, an Australian hedge fund suing Goldman Sachs for $1 billion over losses related to CDS's, or credit default swaps, made the deal in Australia and can’t sue in the United States, Goldman Sachs has said.  In a  9/1 filing in Manhattan federal court, Goldman said Basis never contends it “did anything within the United States in relation to the transaction” - and thus, the judge should throw out the lawsuit.

The lawsuit by Basis Capital’s Basis Yield Alpha Fund focuses on Goldman Sachs’s sale of the “Timberwolf” CDO (collateralized debt obligation).  The complaint, filed 6/9 says the fund was forced into insolvency after buying mortgage-linked securities created by Goldman Sachs, in what one of its own executives described internally as a “shi**y deal.”  Goldman, citing a June U.S. Supreme Court ruling known as “Morrison,” countered by saying that U.S. securities laws don’t apply to the claims of foreign buyers of non-U.S. securities on foreign exchanges.  Basis responded 8/24, saying:  “Goldman’s thesis, if adopted, would render the U.S. securities laws a nullity any time a U.S. seller engages in fraud in effecting the sale of a security to a foreign purchaser.”

In the complaint, Basis alleged Goldman Sachs falsely claimed in June 2007 that the market for investments such as Timberwolf had stabilized. Basis claims it closed on its deal with Goldman Sachs to buy credit default swaps tied to Timberwolf at the same time Thomas Montag, Goldman Sachs’s former head of sales and trading for the Americas, sent the e- mail calling the Timberwolf CDO “one shi**y deal.”  [NYT Dealbook, 9/3]