Did Goldman Sachs Hide Pending SEC Suit From Shareholders?
April 17, 2010
(ChattahBox)—After news of a SEC civil fraud suit filed against Goldman Sachs became public this week, its shares fell 12.8 percent to close at $160.70 on Friday. Now, questions are being raised about Goldman’s fiduciary duty to its shareholders, to inform them of a damaging pending lawsuit that they were made aware of nine-months ago. In the firm’s 2009 annual report filed with the SEC in March, Goldman simply included a boilerplate clause, also used in the previous year’s report, disclosing regulatory requests for information relating to subprime mortgages and other matters. Now that the proverbial shit has hit the fan so to speak, Goldman’s apparent lack of full disclosure may lead to additional shareholder lawsuits.
Goldman’s disclosure responsibility will come down to legalistic parsing of whether the receipt of a so-called Wells notice, advising the firm of a pending SEC civil lawsuit, triggered Goldman’s responsibility to inform shareholders of the suit at that point. Goldman responded to SEC requests for information in September and since that time, has been in negotiations with SEC officials attempting to squash the lawsuit. But they were unsuccessful and the suit was filed.
According to Bloomberg, the suit targets Goldman Sachs’ collateralized debt obligations, which the SEC claims were created to fail, then sold to unwitting dupes without informing them of the risk. Goldman then turned around and made bets against the instruments:
“The most profitable company in Wall Street history, created and sold collateralized debt obligations tied to subprime mortgages in 2007 without disclosing that hedge fund Paulson & Co. helped pick underlying securities and bet against the vehicles, the SEC said in its suit.”
Goldman Sachs released a statement dismissing the merits of the SEC’s claims of fraud. “The SEC’s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation,” read the statement.
Besides the SEC, Goldman Sachs may soon have to deal with thousands of shareholders, angry at being kept in the dark of the SEC’s pending lawsuit for fraud.
Source: Business Week