NU Online News Service, April 27, 3:46 P.M. EST

In a move that experts saw signaling a new wave of securities litigation, a shareholder class action has been filed against Goldman Sachs Group and three of its executives.

The prospective class action against Goldman Sachs Group and against three officers--CEO Lloyd Blankfein, CFO David Viniar and President and COO Gary Cohn--was filed yesterday in U.S. District Court in Manhattan on behalf of purchasers of common stock of Goldman Sachs Group between Oct. 15, 2009 and April 16, 2010.

The end of the class period coincides with the date on which the Securities and Exchange Commission sued Goldman Sachs, charging that the firm and one of its vice presidents, Fabrice Tourre, with defrauding investors in structuring and marketing a collateralized debt obligation known as ABACUS 2007-AC1.

The SEC alleges that Goldman marketed the ABACUS CDO tied to subprime mortgages without disclosing to investors that a hedge fund with economic interests adverse to theirs--Paulson & Company--played a key role in the portfolio selection process for the CDO.

The class action complaint filed by the Robbins Geller Rudman & Dowd law firm in New York alleges, among other things, that Goldman Sachs did not disclose to shareholders that it had received a Wells notice from the SEC in July 2009.

"Even as it responded to the SEC in the fall of 2009, Goldman continued to conceal from investors that it had received such a notice and was being invested by the SEC in connection with the events and practices surrounding the ABACUS 2007-AC1 transaction," says the complaint brought by plaintiff Howard Sorkin on behalf of the class.

In October, the complaint continues, Goldman reported a 190 percent increase in year-over-year quarterly earnings and Goldman's stock traded at artificially inflated prices during the class period--reaching a high of $188.63 on Oct. 15.

On April 16, after news of the SEC suit broke, Goldman's stock closed at $160.70 per share. The full complaint is available at http://www.rgrdlaw.com/cases/goldmansachs/complaint.pdf.

Speaking to NU in the wake of the SEC suit filing last week, David Bradford, Advisen consulting firm executive vice president, noted that "the usual progression is that private actions follow regulatory actions," predicting further regulatory actions and private suits from investors in the CDOs, as well as suits from investors in stock of Goldman Sachs itself.

Michael Young, a litigation partner with Willkie Farr & Gallagher in New York, said, "SEC enforcement activity can often be the match on top of the gasoline igniting [private] litigation."

"In a highly charged environment, proceedings tend not to happen in isolation," Mr. Young told NU. "Increasingly, we encounter a full spectrum of adversarial theaters, such as the SEC, attorneys general, the Department of Justice and even Congress, along with civil litigation."

Mr. Bradford also predicted that the SEC suit against Goldman could set the stage for shareholder derivative suits, and at least two such suits were filed on April 23.

In the derivative suits, in addition to Mr. Blankfein and Mr. Cohn, one of the Goldman directors named as a defendant is James J. Schiro, the former CEO of Zurich Financial Services.

The two derivative suits, filed by Morton Spiegel and Robert Rosinek on behalf of the company, allege breaches of fiduciary duty during the period from 2004 to the present "that have caused substantial financial loss to Goldman Sachs and damaged its reputation and goodwill."

During that time period, Goldman engages in 23 ABACUS transactions, says the complaint filed by the law firms Faruqi and Faruqi in New York and Gardy & Notis in Englewood Cliffs, N.J. The action was filed in New York State Supreme Court, a county-level tribunal in Manhattan.

The SEC lawsuit and the three shareholder suits all came on the heels of the release of an Advisen analysis revealing a 39 percent plunge in first-quarter securities suit filings (including regulatory actions).

"Within a week of the report, there's been this significant new development that could very much change the picture going forward," Advisen's David Bradford said.

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