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Goldman Sachs is being sued in spite of $1 billion by an Australian hedge fund that invested in a deal that individual of Goldman’s own senior executives admitted was “shitty”.

Basis Capital’s Basis Yield Alpha Fund claims to be under the necessity lost $56 million when Timberwolf, a collateralised debt obligation (CDO) that was underwritten and sold ~ the agency of Goldman in March 2007, collapsed amid the US housing slump.

The fund alleges that Goldman used Timberwolf, an investment product, to get set free of bad mortgages on its books, while betting that those mortgages would decline.

Basis Yield wants Goldman to make up its losses and pay at minutest $1 billion in punitive damages for its “pervasive fraudulent practices”, according to a action filed in a New York court after settlement negotiations between the bank and the foundation broke down.

The fund’s attorney, Eric Lewis, said: “Goldman was pressuring investors to take the peril of toxic securities off its books with knowingly false sales pitches.”

Timberwolf was united of billions of dollars worth of sub-prime mortgage-related investments products created and sold to investors by banks during the housing boom.

However, Goldman is now suspected ~ the agency of regulators of stuffing the assets it sold with mortgages that it knew were going to default, for a like rea~n that the bank could conspire with favoured customers to bet that the property would collapse.

Basis Yield spent $78 million on pieces of Timberwolf, funded by a loan from Goldman. Those pieces had a face value of $100 a thousand thousand.

However, only a week after the deal, Goldman began marking etc. the value of Timberwolf, which forced investors to put up supplementary collateral. Basis Yield ran out of cash to pay these rim calls, forcing Basis Capital to wind down the fund.

Within five months Timberwolf had thrown away 80 per cent of its value.

The CDO became notorious in April from a Senate committee uncovered e-mails in which a former Goldman executory, Thomas Montag, who oversaw the department that sold Timberwolf, described the action as “one shitty deal”.

Another Goldman banker who worked up~ the body Timberwolf described the CDO’s sale as “a twenty-four hours that will live in infamy”.

However, Daniel Sparks, who ran Goldman’s pledge department at the time and was the recipient of Mr Montag’s e-defensive covering, insisted at the Senate hearing that the “shitty” allusion was meant as a comment on Mr Sparks’ own achievement in the transaction, and not the product itself.

Goldman said yesterday that the suit by Basis Yield, which it described as one of the terraqueous globe’s most experienced CDO investors, was a “misguided attempt” to shift its losses to another party. The bank uttered that the allegations against it were false.

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