Bayou Creditors Win $20.5M From Goldman Sachs

Jun 28 2010 | 7:24am ET

Goldman Sachs has been ordered to pay more than $20 million to creditors of collapsed hedge fund Bayou Group, who had accused the firm of failing to investigate signs that Bayou was a Ponzi scheme.

A Financial Industry Regulatory Authority arbitration panel did not offer an explanation of its decision, but sided with the 200 unsecured creditors who had sued Goldman Sachs Execution and Clearing, awarding them $20.5 million. Those creditors accused the firm of “either gross negligence or a willful choice to ignore signs of fraud” which wound up costing investors more than $400 million when Bayou collapsed in 2005.

It is the largest arbitration award ever ordered at a securities firm.

Goldman cleared Bayou’s trades. The firm claims that $20.5 million at issue was never in its possession and was fraudulently transferred between Bayou accounts.

 Goldman said it was considering its options. The firm can appeal the arbitration decision in the courts.

“We are very pleased that investors are getting all their money back,” Ross Intellisano, a lawyer for the unsecured creditors committee, said. “Firms like Goldman Sachs should not be allowed to stick their head in the sand when a fraud is going on.”

Three Bayou executives were sent to prison in the wake of the fraud, most notably co-founder Samuel Israel, who went on the lam for three weeks after being sentenced to 20 years in prison for his role in the Ponzi scheme.


In Depth

Q&A: Brevan Howard’s Charlotte Valeur Talks Strategy

Sep 18 2014 | 11:18am ET

Charlotte Valeur chairs the board of Brevan Howard Credit Catalysts, an LSE listed...

Lifestyle

Griffin Donates $1M To Rauner's Illinois Gov. Campaign

Sep 22 2014 | 9:29am ET

Hedge fund billionaire Kenneth Griffin definitely has a dog in this fight. The Citadel...

Guest Contributor

Top 5 Predicted Outcomes Of CalPERS' Hedge Fund Divestment

Sep 22 2014 | 8:35am ET

CalPERS’ announcement to divest of hedge funds has created a significant buzz...

 

Videos

Hard Assets Trending

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

September 2014 Cover

The London Whale: Rogue risk management

Credit default swaps brought down the London Whale and cost JPMorgan $6.2 billion. Here is how it happened.

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.