Bayou Creditors Win Right To Investigate Goldman Sachs

Feb 4 2008 | 8:44am ET

Unsecured creditors of the Bayou Group won court approval to probe the collapsed hedge fund’s prime broker, looking for evidence that could lead to a claim against it.

A federal bankruptcy court judge in White Plains, N.Y., approved the request last week, allowing the creditors to see if the Stamford, Conn.-based hedge fund fraudulently transferred funds to Goldman Sachs Execution and Clearing.

“GSEC received funds from the debtors at a time when the debtors were insolvent and/or pursuing a fraudulent investment scheme,” the creditors committee alleged. “Accordingly, there is reason to believe that viable claims exist against GSEC for fraudulent transfers under state and federal law.”

Under federal bankruptcy law, the creditors can investigate the nature of the Goldman brokerage unit’s relationship with Bayou, its knowledge of the hedge fund’s financial condition, what it received from the hedge fund and whether it caused any injury to it, with the court ordering GSEC to turn over relevant documents.

According to the creditors committee, GSEC and Spear, Leeds & Kellogg—which Goldman acquired in 2000—served as Bayou’s prime broker since 2000.

Suing a prime broker in a hedge fund fraud case is not unprecedented: Bear Stearns last year was ordered to pay $125 million in a case involving the Manhattan Investment Fund, for which Bear served as prime broker. That case is still making its way through the courts.

Bayou’s top leaders pleaded guilty in 2005 to defrauding investors of $450 million. Daniel Marino, former chief financial officer of Bayou, was sentenced to 20 years in prison last week, and is expected to be hit with a nine-figure restitution order; earlier, co-founder James Marquez was sentenced to more than four years. Co-founder Samuel Israel is to be sentenced this month.


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

Hedgies Rock Out For Children's Charity

Sep 15 2014 | 8:40am ET

It's that time of year again—when hedgies trade in their spreadsheets for guitars...

Guest Contributor

Volkered: How Financial Sector Reforms are Creating Opportunities for Hedge Funds

Sep 16 2014 | 11:28am ET

New regulations have dramatically curtailed proprietary trading activity in investment...

 

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.