Goldman Hit With Galleon Subpoena, Shareholder Suits

May 4 2010 | 4:21am ET

Legal troubles continue to mount for Goldman Sachs in two hedge fund-related cases. The Wall Street giant yesterday revealed that it has been subpoenaed in the Galleon Group insider-trading case, and that it had been hit with six investor lawsuits since the Securities and Exchange Commission accused it of defrauding investors in a collateralized debt obligation it structured for Paulson & Co.

The new legal headaches come on top of the SEC’s lawsuit, filed last month, a criminal investigation into the CDO deal, as well as a raft of probes in Europe. It also emerged last month that a Goldman director, Rajat Gupta, may have passed non-public information about Berkshire Hathaway’s $5 billion investment in the bank to Galleon founder Raj Rajaratnam.

In the Galleon case, the SEC has demanded the trading records and monthly account statements of Michael Kimelman from Goldman and its Goldman Sachs Execution and Clearing division. Kimelman is one of 21 people charged in the insider-trading case.

The subpoena was sought by Kimelman’s attorney and delivered to Goldman on April 15, one day before it was sued by the SEC over the Paulson CDO. Lawyers for Kimelman, formerly of hedge fund Incremental Capital and one of nine Galleon defendants to plead not guilty, want lawyers from Goldman’s legal department to appear in court on May 14.

Potentially more damaging to Goldman are the half-dozen shareholder lawsuits filed against it in the wake of the SEC lawsuit. Those investors accuse Goldman of “breach of fiduciary duty, corporate waste, abuse of control, mismanagement and unjust enrichment,” as well as “challenging the accuracy and completeness of GS Inc.’s disclosure,” the bank said in an unusual SEC filing.

The alleged incompleteness that has left shareholders fuming apparently stems from Goldman’s decision not to inform its investors that it received a Wells Notice about the Paulson CDO last summer, indicating that the SEC was planning to bring an enforcement action against it.

The shareholder suits are seeking damages, restitution and corporate governance reform.

The SEC accuses Goldman of failing to disclose Paulson’s alleged role in selecting the residential mortgage-backed securities that went into the CDO in question, called ABACUS-2007-AC1. The regulator has also rapped Goldman for allegedly failing to disclose that Paulson planned to short the vehicle.

Goldman has denied any wrongdoing in the case.


In Depth

Q&A: Open Season For Closed-End Funds

Aug 29 2014 | 10:00am ET

When Maury Fertig and Bob Huffman, former Salomon Brothers coworkers, launched...

Lifestyle

Och Funds Women In Finance Initiative At U-M

Aug 28 2014 | 3:01pm ET

Och-Ziff Capital founder Daniel Och and his wife have made a "generous donation"...

Guest Contributor

Looking Ahead: What’s In Store For Managed Futures?

Aug 22 2014 | 12:52pm ET

The last five years were phenomenal for investors in equity indices. Will the next...

 

Editor's Note

    Get A Sneak Peak Of The Alpha Pages

    Aug 25 2014 | 11:21am ET

    As many of you know, FINalternatives was recently acquired by the owners of Futures magazine, a firm called The Alpha Pages LLC. Today marks the soft-launch of a new sister site for both publications. As its name suggests, The Alpha Pages will cover all types of alternative investments, going far beyond the more well-known ones such as hedge funds and private equity. Read more…

 

Futures Magazine

July/August 2014 Cover

The time was right

Commodities/Futures magazine launched at the precipice of a revolution in the futures industry—really a revolution in the idea of risk management—that would move it from a small niche industry to ...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.