One danger for Goldman Sachs (NYSE: GS) as it finds itself in the prosecutorial crosshairs is that it may open itself up to a lot of private litigation. That's one of the big reasons the firm cannot accept any sort of settlement that calls for it to admit guilt to fraud (fraud news) charges. But it may end up facing more suits anyway.

Case in point: an Australian hedge fund, the Basis Yield Alpha Fund, has sued Goldman seeking to recoup $56 million it says it lost on the notorious Timberwolf collateralized debt obligation, which garnered a lot of attention during a recent congressional hearing, reports Reuters. The fund would also like $1 billion in punitive damages. Settlement talks were apparently underway but fell apart recently.

The fund financed the transaction with a loan from Goldman Sachs and ended up facing debilitating margin calls. A lot of relevant email traffic was made public by the recent Congressional hearings, and that may have played a role in the decision to sue.

In the wake of recent events, we should assume that every aggrieved customers is scouring the agreements in search of something actionable. I doubt we'll see a class action-like effort. But more litigation seems to be a certainty. 

For more:
- here's the article

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