Articles Posted in Goldman Sachs

Shareholder Lawsuit Against Goldman Sachs CEO and Other Financial Firm Executives is Dismissed

Published on: August 18, 2012 | by Shepherd Smith Edwards & Kantas, LLP

In the US District Court for the Southern District of New York, the shareholder complaint against a number of Goldman Sachs Group (GS) executives, including CEO Lloyd Blankfein, COO Gary Cohn, CFO David Viniar, and ex-director Rajat Gupta, has been dismissed. The lead plaintiffs of this derivatives lawsuit are the pension fund Retirement Relief System of the City of Birmingham, Alabama and Goldman shareholder Michael Brautigam. They believe that the investment bank sponsored $162 billion of residential mortgage-backed securities while knowing that the loans backing them were in trouble. They say that Goldman then proceeded to sell $1.1 billion of the securities to Freddie Mac and Fannie May. Their securities complaint also accuses the defendants of getting out of the Troubled Asset Relief Program early so they could get paid more.

According to Judge William Pauley, the plaintiffs did not demonstrate that “red flags” had existed for bank directors to have been able to detect that there were problems with the “controls” of mortgage servicing business or that problematic loans were being packaged with RMBS. He also said that the shareholders did not prove that firm directors conducted themselves in bad faith when they allowed Goldman to pay back the $10 billion it had received from TARP early in 2009, which then got rid of the limits that had been placed on executive compensation.

Even with this shareholder complaint against Goldman tossed out, however, the investment bank is still dealing with other shareholder lawsuits. For example, they can file securities lawsuits claiming that they suffered financial losses after Goldman hid that there were conflicts of interest in the way several CDO transactions were put together.

Goldman Sachs Execution and Clearing Must Pay $20.5M Arbitration Award in Bayou Ponzi Scam, Upholds 2nd Circuit

Published on: July 14, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Court of Appeals for the Second Circuit is allowing a $20.5M award issued by a Financial Industry Regulatory Authority arbitration panel against Goldman Sachs Execution & Clearing LP to stand. The court turned down Goldman’s claim that the award should be vacated because it was issued in “manifest disregard of the law” and said that the clearing arm must pay this amount to the unsecured creditors of the now failed Bayou hedge fund group known as the Bayou Funds, which proved to be a large scale Ponzi scam.

Goldman was the prime broker and only clearing broker for the funds. After the scheme collapsed in 2005, the Bayou Funds sought bankruptcy protection the following year. Regulators would go on to sue the fund’s funders over the Ponzi scam and the losses sustained by investors. Meantime, an Official Unsecured Creditors’ Committee of Bayou Group was appointed to represent the debtors’ unsecured debtors. Blaming Goldman for not noticing the red flags that a Ponzi fraud was in the works, the committee proceeded to bring its arbitration claims against the clearing firm through FINRA. In 2010, the FINRA arbitration panel awarded the committee $20.58M against Goldman.

In affirming the arbitration award, the 2nd Circuit said that in this case, Goldman did not satisfy the manifest disregard standard. As an example, the court pointed to the $6.7M that was moved into the Bayou Funds from outside accounts in June 2005 and June 2004. While the committee had contended during arbitration that these deposits were “fraudulent transfers” and could be recovered from Goldman because they were an “initial transferee” under 11 U.S.C. §550(a), Goldman did not counter that the deposits weren’t fraudulent or that it was on inquiry notice of fraud. Instead, it claimed the deposits were not an “initial transferee” under 11 U.S.C. §550 and the panel had ignored the law by finding that it was.

Goldman Sachs to Pay $22M For Alleged Lack of Proper Internal Controls That Allowed Analysts to Attend Trading Huddles and Tip Favored Clients

Published on: April 14, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Accused of not putting in place policies to prevent analyst huddles, Goldman Sachs Group Inc. (GS) will settle for $22 million the allegations made against it by US regulators. According to the Securities and Exchange Commission and FINRA, due to the nature of the financial firm’s internal control system research analysts were able to share non-public information with select clients and traders.

To settle the securities case, Goldman will pay $11 million each to FINRA and the SEC. It also consented to refrain from committing future violations and it will reevaluate and modify its written policies and procedures so that compliance won’t be a problem in the future. The financial firm has agreed to have the SEC censure it. By settling Goldman is not denying or admitting to the allegations.

Meantime, FINRA claimed that Goldman neglected to identify and adequately investigate the increase in trading in the financial firm’s propriety account before changes were made to analysis and research that were published. The SRO says that certain transactions should have been reviewed.

This is not the first time that Goldman has gotten in trouble about its allegedly inadequate control systems. Last year, it agreed to pay $10 million to the Massachusetts Securities Division over ASI and the huddles. In 2003, the financial firm paid $9.3 million over allegations that its policies and controls were not adequate enough to stop privileged information about certain US Treasury bonds from being misused.

The latest securities actions are related to two programs that the financial firm created that allegedly encouraged analysts to share non-public, valued information with select clients. The SEC says that during weekly “huddles” between 2006 and 2011, Goldman analysts would share their perspectives on “market color” and short-term trading with company traders. Sales employees were also sometimes present, and until 2009, employees from the financial firm’s Franchise Risk Management Group who were allowed to set up large, long-term positions for Goldman also participated in the huddles.

Also in 2007, the financial firm established the Asymmetric Service Initiative. This program let analysts share ideas and information that they acquired at the huddles with a favored group made up of approximately 180 investment management and hedge fund clients.

The SEC contends that ASI and the huddles occurred so that Goldman’s traders’ performances would improve and there would be more revenue in the form of commissions. The financial firm even let analysts know that it would be monitoring whether ideas discussed at the huddles succeeded and that this would be a factor in performance evaluations. The Commission said that the two programs created a serious risk, especially considering that a lot of ASI clients were traders who did so often and in high volume.

Meantime, FINRA claimed that before changes were made to published analysis and research, Goldman would neglect to identify and adequately investigate the increase in trading in the financial firm’s proprietary account. The SRO says that there were certain transactions that should have been reviewed.

This is not the first time that Goldman has gotten in trouble over its allegedly inadequate control systems. Last year, it agreed to pay $10 million to the Massachusetts Securities Division over ASI and the huddles. In 2003, the financial firm paid $9.3 million over allegations that its policies and controls were not adequate enough to stop privileged information about certain US Treasury bonds from being misused.

Goldman Sachs to Pay $22 Million Over Analyst Huddle Claims, Bloomberg, April 12, 2012

More Blog Posts:
Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges, Stockbroker Fraud Blog, October 26, 2011

$698M MBS Lawsuit Seeking Damages from Goldman Sachs Group Can Take on Class Action Status, Says District Judge

Published on: February 23, 2012 | by Shepherd Smith Edwards & Kantas, LLP

U.S. district judge says that Public Employees’ Retirement System of Mississippi v. Goldman Sachs Group Inc., a securities fraud lawsuit, may proceed as a class action case. Some 150 investors would fall under this class plaintiff category as they seeking damages related to a $698 million mortgage-backed securities offering.

According to the complaint, loan originator New Century Financial Corp. did not abide by its own underwriting standards and overstated what the value was of the collateral backing the loans. The plaintiffs are accusing Goldman Sachs of failing to conduct the necessary due diligence when it purchased the loans seven years ago. The financial firm then structured, issued, and sold the mortgage pass-through certificates in a single offering.
Goldman attempted to fight certification on the grounds of numerosity, typicality, commonality, statute of limitations, typicality, and alleged conflicts involving buyers of different tranches, what investors knew, and other claims.

Judge Harold Baer Jr. turned down the defendants’ contention that class claims wouldn’t predominate due to individual investors’ knowledge of possibly false statements that may have been made in the offering documents when the acquisition took place. The defendants also had argued that class status should not be granted because investors, who conducted their own research and due diligence, interacted directly with loan originators, as well as had access to data that gave them information about New Century’s practices and the loan pool.

The court also turned down the defendants’ claim revolving around investors’ relying on asset managers and the change in information that was made publicly available over time. The court said that determining whether individual or common issues predominate is reliant upon whether putative class members took part in or knew about the alleged behavior and that likelihood of knowledge is not enough.

Public Employees’ Retirement System of Mississippi had been seeking to certify as a Class any entity or person that bought or otherwise publicly acquired offered certificates of GSAMP Trust 2006-S2 and, as a result, sustained damages. Not included in the Class are defendants, respective officials, directors, affiliates, these parties’ immediate relatives, heirs, legal representatives, successors, assigns, and any entity that defendants had or have controlling interested in.

Goldman Sachs Mortgage-Backed Securities Suit Granted Class-Action Status, Bloomberg, February 3, 2012

$698 Million Class Can Sue Goldman, Courthouse News Service, February 7, 2012

More Blog Posts:
Goldman Sachs CEO Hires Prominent Defense Attorney in the Wake of Justice Department Probe into Mortgage-Backed Securities, Institutional Investor Securities Fraud Blog, August 24, 2011

Mortgage-Backed Securities Lawsuit Against Bank of America’s Merrill Lynch Now a Class Action Case, Stockbroker Fraud Blog, June 25, 2011

Two Ex-Credit Suisse Executives Plead Guilty to Mortgage-Backed Securities Fraud, Institutional Investor Securities Fraud Blog, February 7, 2012

SEC Proposes Restricting Financial Firms From Betting Against Financial Products Sold to Investors

Published on: September 20, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has taken steps to prevent financial firms from betting against their packaged financial products that they sell to investors. Its proposal, introduced this week, also seeks to prevent the types of conflict witnessed in last year’s civil lawsuit against Goldman Sachs through a ban on third parties being able to set up an asset-backed pool allowing them to make money from losses sustained by investors.

The proposal comes following a report by US Senate investigators accusing Goldman of setting itself up to make money from investor losses sustained from complex securities that the financial firm packaged and sold. It would place into effect a provision from the Dodd-Frank Wall Reform Consumer and Protection Act, which requires that the commission ban for one year placement agents, underwriters, sponsors, and initial buyers of an asset-backed security from shorting the pool’s assets and establishing material conflict. Restrictions, however, wouldn’t apply when a firm is playing the role of market-maker or engaged in risk hedging. The SEC also wants the industry to examine how the proposal would work along with the “Volcker rule,” which would place restrictions on proprietary trading at banks and other affiliates.

SEC’s Securities Case Against Goldman
The SEC accused Goldman of creating and marketing the ABACUS 2007-AC1, a collateralized debt obligation, without letting clients know that Paulson & Co. helped pick the underlying securities that the latter then went on to bet against. Last year, Goldman settled the securities case with the SEC for $550 million.

In settlement papers, Goldman admitted that it did issue marketing materials that lacked full information for its ABACUS 2007-AC1. The financial firm said it made a mistake when it stated that ACA Management LLC “selected” the reference portfolio and did not note the role that Paulson & Co. played or that the latter’s “economic interests” were not in line with that of investors. The $550 million fine was the largest penalty that the SEC has ever imposed on a financial services firm. $250 million of the fine was designated to go to a Fair Fund distribution to pay back investors.

Volcker Rule
Named after former Federal Reserve Chairman Paul Volcker, the proposed rule is designed to limit the kinds of high-risk investments that helped contribute to the recent financial crisis. It would also restrict the financial firms’ use of their own money to trade. Bloomberg.com reports that overseas firms with businesses in the US may also be subject to these limits on proprietary trading. Per Dodd-Frank, October 18 is the deadline to establish rules to execute the provision.

Volcker Rule May Be Extended to Overseas Banks With Operations in the U.S., Bloomberg, September 16, 2011

SEC moves to limit firms’ bets against clients, Reuters, September 19, 2011

Volcker Rule Delay Is Likely, Wall Street Journal, September 12, 2011

More Blog Posts:

Goldman Sachs Ordered by FINRA to Pay $650K Fine For Not Disclosing that Broker Responsible for CDO ABACUS 2007-ACI Was Target of SEC Investigation, Stockbroker Fraud Blog, November 12, 2010

Goldman Sachs CEO Hires Prominent Defense Attorney in the Wake of Justice Department Probe into Mortgage-Backed Securities

Published on: August 24, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Now that the Justice Department is investigating Goldman Sachs (GS), Lloyd C. Blankfein, the broker-dealer’s chief executive, has retained the services of a prominent defense attorney. This move comes following allegations by the Senate Permanent Subcommittee on Investigations accusing firm executives of misleading investors and Congress about mortgage-backed securities. News of Reid Weingarten’s hiring caused Goldman Sachs’ shares to drop almost 5%. On Tuesday, Goldman Sachs lost almost $2.7 billion in market value.

The Senate panel issued a report claiming that Goldman Sachs misled investors when it failed to disclose that it was betting against securities that they were buying from the financial firm. The report also accuses the financial firm’s CEO of lying under oath when making the claim that the financial firm did not have a massive short position against the housing market.

Weingarten is a leading criminal defense attorney at Steptoe & Johnson. He previously represented ex-Enron accounting officer Richard Causey, ex-WorldCom chief executive Bernard Ebbers, ex-Duane Reade chief executive Anthony Cuity, and ex-Tyco International general counsel Mark Belnick.

The senate panel’s report, which is 639 pages long, comes after a 2-year bipartisan investigation. The subcommittee found that traders and executives tried to eliminate their exposure to the subprime mortgage market while shorting the market to make a profit.

The panel accused Goldman of misleading clients when it didn’t tell them that it was betting or shorting against their investments. In 2007, Goldman’s mortgage department made a $1.2 billion profit.

Goldman Sachs’s latest quarterly filing with the SEC reveals that the financial is under scrutiny for a number of issues, including its role as a clearing broker and its compliance with the US Foreign Corrupt Practices Act. The investment bank is also be under investigation at the state, federal, and local levels and is the recipient of subpoenas. In 2010, Goldman Sachs agreed to settle for $550 million charges by the SEC that it misled clients about a synthetic collateralized debt obligation (CDO) when the housing market was collapsing.

Recently, Allstate (ALL) sued Goldman Sachs Group for the over $123 million in MBS that it says that the financial firm fraudulently sold it. Allstate claims that Goldman issued misstatements and made omissions about the mortgages. The National Credit Union Administration also just filed its securities fraud case seeking $491 million from Goldman for the purchase of more than $1.2 billion in MBS sales. NCUA blames Goldman and other financial firms, including JPMorgan and RBS Securities, for the failure of five wholesale credit unions. NCUA says that because of the way Goldman handled the mortgage-backed securities sales, the credit unions did not know they were taking on such huge risks when they made those investments.

Why Goldman Investors Are Overreacting, New York Times, August 23, 2011

Goldman confirms Blankfein and other execs hired outside lawyers, Efinancial News, August 23, 2011

More Blog Posts:
NCUA’s Sues Goldman Sachs for $491M Over $1.2B of Mortgage-Back Securities Sales That Caused Credit Unions’ Failure, Institutional Investor Securities Blog, August 23, 2011

Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million, Stockbroker Fraud Blog, July 30, 2010

Goldman Sachs Group Made Money From Financial Crisis When it Bet Against the Subprime Mortgage Market, Says US Senate Panel, Institutional Investors Securities Blog, April 15, 2011

NCUA Sues Goldman Sachs for $491M Over $1.2B of Mortgage-Back Securities Sales That Caused Credit Unions’ Failure

Published on: August 23, 2011 | by Shepherd Smith Edwards & Kantas, LLP

In its fifth MBS lawsuit seeking what is now totaling to be nearly $2 billion in compensatory damages for wholesale credit union members, the National Credit Union Administration (NCUA) wants $491 million in compensatory damages from Goldman Sachs. NCUA is accusing the financial firm of misrepresenting the MBS that were sold to member credit unions that then sustained huge losses that led to their failure.

Goldman Sachs allegedly misrepresented material facts in prospectuses, marketing collaterals, and when selling the MBS. Because of this, NCUA says that the credit unions thought that the risk of loss for their investments was low.

NCUA filed its securities complaint against Goldman Sachs in California district court. NCUA is serving as the liquidating agent for the corporate credit unions that failed. It has filed other securities lawsuits seeking nearly $2 billion in compensatory damages. Two of the other defendants that NCUA is suing are RBS Securities and JPMorgan. Both, and others, are accused of underestimating the risks involved with the MBS.

Allstate Files Securities Fraud Lawsuit Against Goldman Sachs Over More Than $123M of Mortgage-Backed Securities

Published on: August 18, 2011 | by Shepherd Smith Edwards & Kantas, LLP

According to Allstate Corp., Goldman Sachs Group Inc. committed securities fraud by fraudulently selling the insurer over $123 million of mortgage-backed securities prior to the collapse of the housing market. Allstate is also accusing Goldman of making “untrue statements” and leaving out “material facts” about the mortgages.

Allstate Insurance Corp, a subsidiary of Allstate Corp, filed the securities fraud complaint in New York State Supreme Court this week. The plaintiff is accusing the broker of violating state laws and negligent misrepresentation. Allstate believes that Goldman marketed the MBS as low-risk with strict underwriting criteria even though the latter knew the lenders had stopped abiding by the guidelines and that loans were being produced without the chance of payback.

Goldman has already settled for $550 million similar securities fraud charges filed by the SEC. This was the largest penalty a Wall Street financial firm has ever been ordered to pay. The Commission claimed that Goldman encouraged investors to buy into complex mortgage investments while failing to tell them that a client who was betting against the securities had crafted them. In April, a Senate Report said that in an attempt to move risk away from Goldman and to investors, the broker marketed four complex mortgage securities.

With this latest securities lawsuit against Goldman, Allstate has now filed nine MBS lawsuits since December. The defendants of the other complaints are Countrywide Financial, Bank of America Corp., Morgan Stanley, Merrill Lynch and Co, JPMorgan Chase & Co, Citigroup Inc., Deutsche Bank AG, and Credit Suisse Group:

• The securities lawsuit against Countrywide is over $700 million of toxic MBS that the insurer purchased. Bank of America is named in the complaint because it purchased Countrywide in 2008.

• The complaint against Morgan Stanley is over Allstate’s purchase of over $104 million in residential MBS in six offerings and the broker’s “central role” in creating and selling the securities. Allstate says that Morgan Stanley either knew or “recklessly disregarded” that the lenders involved were putting out risky loans that were not in compliance with underwriting standards.

• Allstate’s lawsuit against Merrill Lynch involves the allegedly fraudulent sale of approximately $167 million of residential mortgage-backed securities.

• The insurer is accusing JP Morgan Chase of misrepresenting the risks involved in over $757 million of mortgage securities that it purchased.

• Allstate bought over $200 million of MBS from the Citigroup defendants and approximately $185 million from the Deutsche bank units. Misrepresentations and omissions related underwriting standards, loan-to-value ratios, and owner occupancy data are among the allegations.

• Allstate’s securities lawsuit against Credit Suisse is over $231 million of MBS. Allstate, which bought the securities from the financial firm, says that the latter did not disclose that the underlying loans were toxic. Allstate is alleging fraudulent inducement, fraud, and negligent misrepresentation.

Our securities fraud attorneys represent investors who have suffered financial losses from investing in mortgage-backed securities.

Allstate sues Goldman over sour mortgage-backed securities, USA Today, August 16, 2011

Allstate Sues Goldman Sachs Over Toxic Mortgage Securities, Insurance Journal, August 17, 2011

More Blog Posts:
Morgan Stanley Reports a Possible $1.7B in Mortgage-Backed Securities Losses, Institutional Investor Securities Blog, August 16, 2011

Bank of America and Countrywide Financial Sued by Allstate over $700M in Bad Mortgaged-Backed Securities, Stockbroker Fraud Blog, December 29, 2010

Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million, Stockbroker Fraud Blog, July 30, 2010

SEC Examining Whether Goldman Sachs Violated Bribery Laws When Dealing with Libya’s Sovereign-Wealth Fund

Published on: June 10, 2011 | by Shepherd Smith Edwards & Kantas, LLP

According to the Wall Street Journal, the SEC is trying to figure out whether Goldman Sachs Group Inc. and a number of other financial firms were in violation of bribery laws because of the way they handled Libya’s sovereign-wealth fund. SEC enforcement lawyers are now looking at documents detailing these relationships. Several other companies have had significant interactions with the Libyan Investment Authority, including Och-Ziff Capital Management Group, JP Morgan Chase, and Carlyle Group.

The Journal says that Goldman invested over $1.33 billion from Libya’s fund in a number of trades in 2008. The investment lost over 98% of its value.

US regulators want to know about a $50M and transaction fees that Goldman Sachs said it would pay the fund in exchange for a release of liability and winding down the trades. Although the money reportedly was never handed over before violence flared up last year in Libya, this doesn’t mean that the financial firm is exempt from the federal Foreign Corrupt Practices Act, which does not let US companies offer (or pay) bribes to state-owned company employees or foreign government officials. The money would have gone to an outside advisory firm that was at the time run by the son-in-law of the Libyan national company.

Goldman spokesman Lucas van Praag has said that the financial firm is “confident” that it didn’t do anything that violated any regulation or rule. He noted that the company worked with outside counsel to make sure that it was in compliance with all rules.

Related Web Resources:
SEC Examining If Goldman-Libya Connection Violated Bribery Laws, Huffington Post, June 9, 2010

SEC Looks At Goldman, Others’ Dealing With Libyan Sovereign Fund, The Wall Street Journal, June 9, 2011

More Blog Posts:

Goldman Sachs Ordered by FINRA to Pay $650K Fine For Not Disclosing that Broker Responsible for CDO ABACUS 2007-ACI Was Target of SEC Investigation, Stockbroker Fraud Blog, November 12, 2010

Goldman Sachs Subpoenaed Over Financial Crisis

Published on: May 31, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Manhattan District Attorney Cyrus R. Vance Jr. has subpoenaed Goldman Sachs. The New York Times says that someone familiar with this matter told the newspaper that the prosecutor is seeking information related to the financial crisis. The District Attorney’s request comes following the Senate investigators’ report last April accusing the financial firm of abusive conduct.

The Senate Permanent Subcommittee on Investigations produced the report, which claims that Goldman Sachs contributed to the financial crisis when it developed mortgage-linked investments that allowed it to make money even as its clients sustained financial losses. Per the NY Times, this subpoena, which comes nearly three years after the height of the crisis, is a clear indicator that officials are continuing to probe the role that Wall Street might have played.

It was last year that Goldman Sachs consented to settle for $550 million the Securities and Exchange Commission charges accusing it of misleading investors about an investment package linked to subprime mortgages. Even as it bet against the package, the financial firm neglected to disclose that Paulson & Co. helped choose the loans. While investors in the Abacus 2007-AC1 collateralized debt obligation (CDO) lost over $1 billion, Paulson made approximately $1 billion.

The report is also alleging a wider scope of abusive conduct by Goldman. For example, when the mortgage market was failing in 2007, the financial firm allegedly sold mortgage-related investments to buyers but neglected to tell them that it was betting against the subprime market and would make money if some of these securities lost value. Goldman also allegedly minted CDOs with assets that it thought might “lose money,” while selling them at prices higher than what they thought they were worth.

Per the report, these arrangements resulted in a number of conflicts of interests and allegedly allowed Goldman to put its interests before its clients. One example involves Goldman choosing assets for the Hudson 1, which is a $2 billion CDO. The report says that the financial firm neglected to reveal that it’s $2 billion short position far outweighed the $6 million investment it made on the same side as the buyers of the CDO.

Goldman has said that it disagrees with many of the report’s findings.

Goldman Sachs subpoenaed, Washington Post, June 2, 2011

Wall Street and the Financial Crisis: The Role of Investment Banks, Senate Permanent Subcommittee on Investigations

More Blog Posts:
Goldman Sachs Ordered by FINRA to Pay $650K Fine For Not Disclosing that Broker Responsible for CDO ABACUS 2007-ACI Was Target of SEC Investigation, Stockbroker Fraud Blog, November 12, 2010

Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million, Stockbroker Fraud Blog, July 30, 2010

Securities Practices of JPMorgan Chase & Goldman Sachs Under Investigation by Federal Investigators, Institutional Investors Securities Blog, May 19, 2011