Judges Junk Goldman's Bayou Appeal

Jul 5 2012 | 10:52am ET

A federal appeals court has rejected Goldman Sachs' appeal of a $20.6 million arbitration award stemming from the Bayou Group hedge fund scandal.

A three-judge panel of the U.S. Second Circuit Court of Appeals ruled that the bank, which cleared trades for Bayou, did not meet the "manifest disregard standard;" Goldman claimed the Financial Industry Regulatory Authority arbitration panel ignored the law.

"The manifest disregard standard is, by design, exceedingly difficult to satisfy, and Goldman has not satisfied it in this case," the judges ruled.

The FINRA panel's award, to Bayou's unsecured creditors, is the largest ever levied against a securities firm. 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.

The Second Circuit ruling upheld a lower court decision, in which U.S. District Judge Jed Rakoff wrote that Goldman had "voluntarily" agreed to arbitration and "must suffer the consequences."

It is unclear whether Goldman will further appeal the ruling by seeking a hearing by the full Second Circuit.

Bayou's creditors are "gratified that they're getting closer to having some of their losses covered by this victory," a lawyer for the group, John Rich, said.


In Depth

Exotic Assets: Investing In Rare Violins

Jan 17 2017 | 4:43pm ET

By definition, alternative investments include exotic assets far beyond your typical...

Lifestyle

'Tis the Season: Wall Street Holiday Parties Back In Fashion

Dec 22 2016 | 9:23pm ET

Spending on Wall Street holiday parties has largely returned to pre-2008 levels...

Guest Contributor

The Trump Administration: What It Could Mean for Carried Interest

Jan 19 2017 | 5:25pm ET

The arrival of the Trump administration brings the potential for a repeal of the...

 

From the current issue of

As initial anxiety over Donald Trump’s victory gave way to market euphoria in the days following the election, there was a casualty. Gold prices.