Goldman Appeals $20.6 Million Bayou Award

Mar 13 2012 | 8:11pm ET

Goldman Sachs has appealed a large arbitration award it was ordered to pay creditors of fraudulent hedge fund Bayou Group two years ago.

The Wall Street giant yesterday asked the U.S. Court of Appeals for the Second Circuit in Manhattan to vacate to $20.6 million award, the largest arbitration award ever levied against a securities firm. In its appeal, Goldman called the award "unreasoned and patently indefensible."

It is the second time that Goldman has sought to have the Financial Industry Regulatory Authority award tossed by the courts. But a lower court judge, Jed Rakoff, in 2010 rejected that bid, arguing that Goldman had "voluntarily" agreed to arbitration and "must suffer the consequences."

While much of Rakoff's opinion was a screed against arbitration—"Arbitration is touted as a quick and cheap alternative to litigation," although "experience suggests that it can be slow and expensive. But it does have these 'advantages'; unlike courts, arbitrators do not have to give reasons for their decisions, and their decisions are essentially unappealable"—he did reject Goldman's contention that the arbitrator "manifestly disregarded the law."

Bayou's unsecured creditors alleged that Goldman Sachs Execution and Clearing, which cleared trades for Bayou, showed "either gross negligence or a willful choice to ignore signs of fraud." Bayou collapsed five years ago, costing investors more than $400 million.


In Depth

FINalternatives Survey: We Asked Investment Pros...

Apr 2 2016 | 9:42pm ET

The data from our annual reader survey continues to roll in and provide interesting...

Lifestyle

Point72's Cohen Donates $275M To Veterans Mental Health Network

Apr 6 2016 | 8:31pm ET

Billionaire hedge fund manager Steve Cohen has formed a non-profit aimed at treating...

Guest Contributor

Agecroft: Why NYCERS Should Reconsider Exiting All Hedge Funds

Apr 18 2016 | 5:51pm ET

The recent decision by the New York City Employment Retirement System to exit its...