Goldman Sachs Named in Shareholder Lawsuits

We have been following the Goldman Sachs debacle since news broke regarding the investment bank’s mortgage securities deals. Now, The Washington Post is reporting the financial giant just announced that six private lawsuits have been filed alleging “breach of fiduciary duty, corporate waste, abuse of control, mismanagement, and unjust enrichment.” All of the lawsuits were filed against Goldman Sachs after the Securities and Exchange Commission (SEC) named in the firm in a civil fraud complaint last month.

The lawsuits were filed by investors that include individual shareholders and a pension fund for an electrical workers union; the lawsuits “piggyback” on SEC claims, said The Washington Post. The plaintiffs claim that Goldman Sachs’ allegedly fraudulent actions caused its investors to suffer losses, added The Washington Post. The lawsuits, which are publicly available, were filed in federal court.

The lawsuits seek compensation from the firm, action against its top executives, and changes to how Goldman Sachs operates, wrote The Washington Post. Experts believe that legal fees alone could cost Goldman upwards of a startling $100 million as well as wreaking irreparable damage to a once-respected investment firm, noted the Post.

Earlier last month, the SEC filed a civil suit against Goldman Sachs, as well as Vice President Fabrice Tourre, over a financial product called Abacus 2007-AC1. As we also reported previously, Abacus was a collateralized debt obligation linked to the performance of sub-prime mortgages that the SEC says was designed to lose money.

After the SEC filed its lawsuit, it was revealed that Goldman Sachs was already facing a Securities and Exchange Commission (SEC) might also be the subject of a criminal probe. According to The Wall Street Journal previously, an unnamed source said the U.S. attorney’s office in Manhattan is conducting a criminal investigation of the investment bank’s mortgage securities deals

The recent announcement regarding the shareholder lawsuits, described as “rare” by The Washington Post, was presented as a regulatory filing, and emphasizes the significant issues regarding Goldman Sachs not advising investors about what could be considered important information concerning their finances. For instance, the SEC alleges that the investment house neglected to advise those clients seeking to invest in the housing market about critical information related to collateralized debt obligation, an investment opportunity Goldman was hyping, said The Washington Post.

Goldman Sachs said in its filing that it expects more “regulatory and other investigations and actions commenced, with respect to offerings of collateralized debt obligations,” quoted The Washington Post. Goldman Sachs continues to maintain its innocence.

According to the SEC complaint, Goldman Sachs failed to disclose the role that hedge fund manager John A. Paulson played in selecting the Abacus portfolio, and did not reveal the fact that his hedge fund had taken a short position against it. Instead, marketing documents for Abacus indicated that the mortgage bond portfolio would be selected by a firm called ACA Management. According to the SEC, Paulson selected mortgage bonds for Abacus that he believed were most likely to lose value. When Abacus tanked, the Goldman Sachs clients who invested in it lost more than $1 billion.

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