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: Reg A+ Will Transform the Alternative Asset Landscape

Jul 7 2015 | 4:03pm ET

In addition to easing capital formation for small companies, Regulation A+ has enormous...

Lifestyle

Hedgies Set to Compete in Wall Street Decathlon

Jun 8 2015 | 12:37am ET

The Wall Street Decathlon — a 10-event physical challenge that will crown “Wall...

Guest Contributor

6 Essential Principles To Balance Your Investment Risk

Jun 26 2015 | 10:07am ET

In this article, financial expert Greg Silberman explores how to hedge a private...

 

Editor's Note