A lawsuit that accused Goldman Sachs Group Inc. of defrauding investors was refused dismissal by a federal judge in Manhattan, according to the latest reports.

Going by the Reuters report, the lawsuit alleged that Goldman Sachs sold junk products linked to subprime mortgages, defrauding investors. US Distict Judge Victor Marrero refused to dismiss the lawsuit that charged Goldman with duping its investors.

The judge has given the ruling that Dodona I LLC could go for almost all its claims against Goldman. This will include charges claiming Goldman's involvement in purposefully selling Hudson Mezzanine Funding collateralized debt obligations (CDOs) with the intention of offloading subprime risk on investors who were not aware of the situation.

The ruling also stated that even experienced investors would have found it extremely difficult to fully understand the complex investment. At the same time, the accusation of market manipulation against Goldman was dismissed by the judge.

The hedge fund had reported that it lost nearly all of its $4 million investment. Goldman is yet to come up with a statement on the ruling.

The ruling comes after a week of alleged accusation by a former employee of Goldman Sachs that the firm took little interest in the clients and was also involved in exploiting them. Greg Smith, executive director at Goldman Sachs, wrote to the New York Times stating that the firm was involved in extorting highest fees from clients by getting rid of unsuitable investment products.