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

Q&A: TCA Fund Management's Bob Press on Small-Cap Private Equity

Aug 25 2016 | 8:55pm ET

The emergence of private credit as a replacement for traditional bank financing...

Lifestyle

Kiawah: Island Reversal

Aug 24 2016 | 9:59pm ET

Looking for real estate investments but the typical real estate fare isn’t cutting...

Guest Contributor

Old Hill Partners: Embrace Illiquidity

Aug 9 2016 | 2:39pm ET

The age-old financial concept that higher yields are the result of higher risk and...