Goldman's Cdo Woes Mean Dollar Signs For Lawyers

[interestrateripoff]

http://uk.reuters.com/article/idUKTRE65A5EZ20100611

The Wall Street investment firm tapped well known litigation specialists Boies, Schiller & Flexner to defend a lawsuit filed June 9 by an Australian hedge fund that seeks $1 billion (688.6 billion pounds) in damages, said people familiar with the situation, but who declined to be identified because they were not authorized to speak on the matter.

David Boies, the New York-based firm's co-founder and chairman, is best known for overseeing the U.S. Department of Justice's antitrust case against Microsoft Corp (MSFT.O) and directing former Vice President Al Gore's Florida recount in the 2000 presidential election.

Boies Schiller will join with lawyers from Sullivan & Cromwell, Skadden Arps, Gibson Dunn & Crutcher and O'Melveny & Myers, all of whom have had a hand in advising Goldman on either a civil fraud lawsuit filed by the U.S. Securities and Exchange Commission or on dealings with other federal investigative bodies.

Goldman's rising legal tab is just one more example of fallout from myriad investigations and lawsuits facing the company as it fends off allegations from regulators, customers and shareholders that it used deceptive sales practices to market billions of dollars' worth of collateralized debt obligations.

To date, the regulatory scandal, which began with the filing of the SEC lawsuit on April 16, has cost Goldman $25 billion in market capitalisation.

Goldman, which does not break out a specific line item for outside legal expenses in its quarterly financial reports, declined to comment on its legal defence strategy. It disclosed at its annual shareholder meeting that it paid $293 million in 2009 for outside legal expenses.

Jonathan Schiller, Boies Schiller's co-founder, who has represented Barclays Capital in the Lehman Brothers (LEHMQ.PK) bankruptcy, will oversee Goldman's defence to the lawsuit brought by Basis Yield Alpha Fund, sources said. Schiller could not be reached for comment.

Basis seeks to recoup the $56 million it lost on an investment in a CDO called Timberwolf that liquidated in 2008 -- a little over a year after Goldman underwrote the $1 billion deal. The now-defunct Basis fund, which contends Goldman misrepresented the value of the Timberwolf securities, also seeks $1 billion in punitive damages.

In the weeks leading up to the filing of the lawsuit, negotiations between Goldman and the Australian hedge fund had been led by Richard Klapper of Sullivan & Cromwell, people familiar with the situation said. But once the lawsuit was filed, Goldman decided to retain the Boies firm.

The Boies firm, sources said, may also work on other CDO-related matters facing Goldman.

Klapper, who could not be reached for comment, has been Goldman's lead outside lawyer in dealing with the SEC, which filed a civil fraud lawsuit over another CDO, Abacus 2007, on April 16.

In the wake of the SEC lawsuit, Goldman has been signing up other high-profile lawyers, some with deep political connections in Washington.

Looks like the Giant Squid is going to be fighting legal battles for years, unless it can use it's connections to get some law passed to stop the lawsuits in the national interest.

The lawyers are sniffing the cash, it looks like GS is going to have some very rough years ahead.