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.
Meantime, the US Department of Justice has officially concluded its criminal investigation into Goldman’s activities before the economic collapse. Yet, some are now wondering why the DOJ chose to issue an official statement that there was no “viable basis to bring a criminal prosecution” against the financial firm when such a public disclosure usually isn’t protocol in this type of probe.
Also, Goldman is reporting that the SEC has concluded its civil investigation into the bank’s sale of over a billion dollars of subprime mortgage debt and has decided not to take any civil action. This is a reversal from the Commission’s earlier Wells notification to Goldman notifying the bank that it would likely be the target of a civil action. The SEC had been looking into whether the bank misled investors, causing them to think that MBS were safe investments for them.
Unfortunately, the economic crisis led to massive losses for many investors of residential mortgage-backed securities, auction-rate securities, and other complex investments. You should speak to an experienced RMBS law firm to explore your legal options for recovery.
U.S. Goldman Disclosure a Rare Break in Secrecy, New York Times, August 10, 2012
Goldman execs win dismissal of mortgage, TARP lawsuit, Reuters, August 15, 2012
Troubled Asset Relief Program, Federal Reserve
More Blog Posts:
Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges, Stockbroker Fraud Blog, October 26, 2011
Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million, Stockbroker Fraud Blog, July 30, 2010
Goldman Sachs Execution and Clearing Must Pay $20.5M Arbitration Award in Bayou Ponzi Scam, Upholds 2nd Circuit, Institutional Investor Securities Blog, July 14, 2012