Goldman Sachs Discloses Lawsuits

May 4, 2010

Goldman Sachs Group Inc., in a rare move, disclosed information about the many lawsuits and shareholder challenges facing the bank.

Goldman, which made the disclosure in a filing with the U.S. Securities and Exchange commission, has been criticized for being too tight-lipped about its legal entanglements.

The disclosure came nearly a week after Chief Executive Lloyd Blankfein faced off with a Senate panel about the role the dominant Wall Street bank played in the subprime mortgage market meltdown.

It comes after Goldman lawyers received a subpoena to testify or give information in an insider trading case that parallels the U.S. government’s case against the Galleon hedge fund’s founder, Raj Rajaratnam, according to a court document made public on Monday.

The Goldman filing says several shareholder lawsuits have been filed against the bank, accusing it and its executives of “breach of fiduciary duty, corporate waste, abuse of control, mismanagement and unjust enrichment … and challenging the accuracy and completeness of GS Inc’s disclosure.”

Goldman, which included copies of a half dozen shareholder complaints in the filing and a shareholder letter, said the lawsuits seek declaratory relief, compensatory damages, restitution and corporate governance reforms.

The shareholder lawsuits began pouring in after the SEC accused Goldman of failing to tell investors the securities underlying a so-called synthetic collateralized debt obligation were chosen by billionaire hedge fund investor John Paulson, whose fund was betting that the CDO would lose value.

Goldman also has been criticized for not telling shareholders that it received a Wells Notice last summer from the SEC, signaling the likelihood of civil charges.

Some of the shareholder lawsuits allege Goldman’s failure to disclose the Wells Notice cost them dearly, given the 21 percent drop in the company’s shares since the filing of the SEC civil suit.


Goldman also received a subpoena to testify or provide information in a case of alleged insider trading, according to a court document made public on Monday.

The subpoena to Goldman Sachs & Co and Goldman Sachs Execution and Clearing LP on April 15, requests “all trading records and monthly account statements associated with account number UF703881” of Michael Kimelman, a former trader at Quad Capital LLC and Incremental Capital.

Kimelman is charged in a case running parallel with the one U.S. prosecutors are pursuing against Galleon hedge fund founder Raj Rajaratnam. Prosecutors described the probe as the biggest-ever U.S. hedge fund insider trading case.

Kimelman was arrested and charged last Nov. 5 along with Zvi Goffer, a onetime Galleon employee who later started the Incremental Capital trading firm and five other traders or lawyers. They have all pleaded not guilty to an indictment and are free on bail.

The subpoena, signed by presiding Manhattan federal court Judge Richard Sullivan, was submitted by Kimelman’s lawyer. It asks representatives of the investment bank’s legal department to appear before the judge at a hearing in the case on May 14.

A spokesman for Goldman Sachs could not immediately be reached to comment. Lawyers for Kimelman could not be reached.

U.S. prosecutors have accused Rajaratnam of obtaining confidential information on Goldman, but have not formally included those in the charges, according to court documents.

Prosecutors said Rajaratnam sought information on the purchase by Warren Buffet’s Berkshire Hathaway Inc of preferred Goldman shares before the transaction became public in 2008. They also said he conspired to obtain confidential information about Goldman’s quarterly earnings before public announcements on or about June 17, 2008, and Dec. 16, 2008.

The Sri Lankan-born Rajaratnam, a U.S. citizen, has pleaded not guilty and is free on bail.

(Reporting by Steve Eder and Grant McCool; editing by John Wallace, Maureen Bavdek, Andre Grenon and Robert MacMillan)

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