Articles Posted in Goldman Sachs

Goldman Sachs Group Inc. (GS) is a defendant in a securities lawsuit brought by Primus Pacific Partners. Primus used to own 20% of Eon Capital, a Malaysian lender. In its complaint, brought in the New York State Supreme Court, Primus accused Goldman and ex-Managing Director Tim Leissner of hiding that there were conflicts of interest involving Malaysian Prime Minister Najib Razak and the 1Malaysia Development Berhad (1MDB), which is a sovereign wealth fund.

Goldman had been advising Eon Capital when the latter was considering a takeover offer from Hong Leong Bank Bhd, which is a Malaysian bank. According to Primus, in January ’10, Goldman and Leissner determined that Hong Leong’s first bid wasn’t fair. A few months later later, however, they decided that a revised offer that was only 2.8% greater was fair and recommended that Eon Capital take the deal.

The plaintiff believes that Goldman approved of the higher bid because it was seeking to impress the Malaysian Prime Minster whose brothers would benefit from a merger. Nazim Rajak worked for Hong Leong as a director while Nazir Rajak was chairman of CIMB Group Holdings Bhd, which advised Hong Leong about its takeover bid of EON Capital.

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Goldman Sachs Group Inc. (GS) will pay $36.3M to settle allegations accusing ex-employees of obtaining access to confidential documents from the Federal Reserve. The Fed contends that Joseph Jiampietro, while working as a Goldman Sachs managing director, obtained the unauthorized supervisory data belonging to bank regulators and utilized the information for his work at the financial firm.

The Fed said that ex-Goldman Sachs banker Rohit Bansal was the one who shared the confidential documents with Jiampietro. Bansal had gotten the documents from his friend Jason Gross, a New York Fed employee that he used to work with at the regulatory agency. The confidential data involved a bank that was a client of Goldman Sachs. Last year, Bansal pleaded guilty to a misdemeanor charge involving the Fed documents, while Gross pleaded guilty to giving Bansal the information.

The Fed believes that Jiampietro used the confidential information to make pitches to potential and current clients. A lawyer for Jiampietro, who had previously worked for UBS Group Ag (UBS) and JPMorgan Chase & Co. (JPM), maintains that the allegations against his client are “demonstrably false.”

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Goldman Sachs Group Inc. (GS) and Basis Capital’s Basis Yield Alpha Fund have reached an agreement to settle the $1B collateralized debt obligation fraud lawsuit brought by the Australian hedge fund against the bank several years ago. The Basis Yield Alpha Fund accused Goldman Sachs of making false statements related to its marketing of the Timberwolf, a mortgage-linked investment, and the Point Pleasant collateralized debt obligation (CDO). (The Timberwolf investment was named in the 2011 U.S. Senate report that found that Goldman misled clients about mortgage-backed securities.)

The Australian hedge fund, in its complaint, claimed that Goldman falsely claimed that the market for CDO investments had become stable even though it knew that was not the case. These particular securities dropped in value within weeks of purchase by the fund.

The Basis Yield Alpha Fund is convinced that Goldman sold the securities to rid itself of the toxic subprime mortgages while making money by shorting the securities. The fund sought repayment of over $67M it claims was lost by investing in the collateralized debt obligations, as well as $1B in punitive damages. Goldman, which argued that the fund’s losses were caused by the demise of the housing market and not because of any alleged misrepresentations, claimed that the Australian hedge fund filed its CDO fraud lawsuit to try to get the bank to pay these losses.

In the High Court in London, the trial in the lawsuit brought by the Libyan Investment Authority (LIA) against Goldman Sachs (GS) is under way. The sovereign wealth fund claims that in 2008 the Wall Street bank misled it about a number of derivatives transactions, causing it to lose $1.2B when the contracts matured five years ago. The transactions are tied to Citigroup (C) stock and other companies’ stmck.

Court filings state that LIA had wanted to buy stakes in global companies that it could potentially partner up with in the future for development. The sovereign wealth fund was set up in 2006 to manage money from the country’s oil fields after Libya was taken off the U.S. government’s list of states that were considered terrorist sponsors.

Goldman made over $200M on the transactions. Meantime, the Libyan fund lost its investment when the economic crisis caused stock prices to drop.

Goldman disputes the allegations made by the Libyan Investment Authority, which claims that it was an unsophisticated investor that the firm took advantage of, persuading it to invest in transactions that it didn’t want or understand. In court, a lawyer for the sovereign wealth fund accused Goldman of using gifts, trips to Morocco, London, and Dubai, training programs, and an internship for the brother of the deputy executive officer of the fund to get the fund to invest.

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Bank of America to Pay Federal Home Loan Bank of Seattle $190M
Bank of America Corp. will pay $190M to resolve mortgage-backed securities fraud charges brought by the Federal Home Loan Bank of Seattle. The SEC filing stated that the settlement was reached last month and that most of it was previously accrued. The lawsuit alleged misstatements and omissions during the issuance of MBSs.

It was just earlier this year that Bank of America’s Merrill Lynch and 10 other banks agreed to pay over $63M to resolve accusations that they misrepresented residential mortgage-backed securities to the Virginia Retirement System and the state of Virginia.

Judge Approves $270M Mortgage-Backed Securities Fraud Settlement Involving Goldman Sachs
A federal judge has approved the proposed settlement between Goldman Sachs (GS) and lead plaintiff NECA-IBEW Health & Welfare Fund, as well as 400 bondholders and another electrical union pension fund. The Illinois pension fund for electrical workers brought the case in 2008, accusing the firm of leaving out key information and making false statements about the mortgages it sold into 17 trusts the year before.

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Seven big banks have resolved a U.S. lawsuit accusing them of rigging ISDAFix rates, which is the benchmark for appraising interest rate derivatives, structured debt securities, and commercial real estate mortgages, for $324M. The banks that have reached a settlement are:

· Barclays PLS (BCS) for $30M (In 2015, Barclays paid $115M to U.S. Commodity Futures Trading Commission to resolve charges of ISDAfix rigging.)
· Bank of America Corp. (BAC) for $50M
· Credit Suisse Group AG (CS) for $50M
· Citigroup Inc. (C) for $42M
· JPMorgan Chase & Co. (JPM) for $52M
· Deutsche Bank AG (DB) for $50M
· Royal Bank of Scotland Group plc (RBS) for $50M

The deal must be approved by a Manhattan federal court. The defendants had sought to have the case dismissed, but US District Judge Jesse Furman in Manhattan refused their request. stating that the case raised “plausible allegations” that the defendants were involved in a conspiracy together.

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Goldman Sachs (GS) has settled a mortgage case brought by the U.S. Department of Justice accusing the firm of deceptive mortgage practices leading up to the 2008 financial crisis. As part of the deal, Goldman will pay $5.06B to resolve the charges. According to the DOJ, the bank also admitted that it issued representations that were “false and misleading” to prospective investors about the MBS that were up for sale. Details of the deal were announced in January after an agreement was reached in principal.

In a statement of facts, Goldman said that “significant percentages” of the mortgages it bundled with securities sold between ’05 and ’07 were not in line with the information provided to investors about the loans. The bank’s Mortgage Capital Committee approved every residential mortgage-backed security it assesses between December ’05 and ’07 even though they were aware that a lot of the home loans contained compliance and credit defects.

The settlement shows that Goldman was aware that a lot of the subprime loans it was packaging into securities could be defective, including an RMBS it created in ’06 using loans made by Countrywide Financial, which was the largest subprime loan provider. It was during this time that a Goldman manager issued an equity research report recommending that the stock be brought. Responding to the report, the bank’s due diligence head that had supervised the scrutiny of several Countrywide mortgage pools replied, “If only they knew.”

The government said that 70% of total loan pools were not examined for problems even though in one bond pool about 25% of loans that were examined were dropped because their quality was poor. For example, in 2006, Goldman notified investors via marketing materials that one underwriter in particular was dedicated to “quality over volume” when it came to the loans even though its own analysis determined that the underwriter, a Fremont General Corp unit, applied “off market” guidelines. In early 2007, the Fremont unit was shut down after the Federal Deposit Insurance Corp. said that the lender allowed people who couldn’t afford to pay back the mortgages to have them anyways.

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Former Goldman Employee Fined Over $900K For SEC Insider Trading Case
Former Goldman Sachs (GS) compliance worker Yeu Han will pay over $903,000 to settle allegations by the U.S. Securities and Exchange Commission accusing him of insider trading. Han was hired by the firm to develop surveillance software to help Goldman identify illegal conduct, including insider trading and market manipulation.

According to the regulator, Han was employed in the firm’s compliance division. He had access to the emails of other Goldman employees who worked on confidential acquisition and merger deals. The SEC contends that even though Han was aware that this information was privileged and nonpublic, and that he would have to get supervisory clearance and disclose his brokerage accounts to engage in any trading, in December 2014 he started trading in the securities of a number of companies before each one publicly announced acquisition and merger news. These companies included Zulily Inc., Yodlee Inc., KLA-Tencor Corp., and Rentrak Corp.

The Commission is accusing Han of making over $468K through his personal account and more than $434K through the account of a relative. Last October, Han left the United States and went to China, where he is a citizen. In November, the SEC filed the insider trading charges against him.

Ex-Harman International VP Pleads Guilty to Insider Trading
Dennis Hamilton, a former vice president of tax at Harman International Industries Inc. has pleaded guilty to insider trading. For the one count of securities fraud, the 45-year-old faces up to 20 years behind bars—although recommended federal guidelines could help him to procure a one-to-two-year prison term instead.

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U.S. District Judge Jesse Furman has turned down the request by Barclays Plc (BARC), Bank of America Corp. (BAC), Deutsche Bank AG (DB), Citigroup Inc. (C), Royal Bank of Scotland Group Plc (RBS), BNP Paribas SA, Credit Suisse Group AG (CS), HSBC Holdings Plc, Goldman Sachs Group Inc. (GS), UBS AG (UBS), JPMorgan Chase & CO. (JPM), Wells Fargo & CO. (WFC), and Nomura Holdings Inc. to dismiss the antitrust lawsuits accusing them of working together to rig the ISDAfix. The benchmark rate is used to establish prices on commercial real estate mortgages, interest-rate swap transactions, and other securities. Another defendant is ICAP Plc, which brokered transactions that set the rate for ISDAfix.

Furman said that plaintiff Alaska Electrical Pension Fund and other investors have brought up “plausible allegations” that there may have been a conspiracy between the defendants that allowed them to collude with one another. The investors are seeking billions of dollars in losses they believe they sustained because ISDAFix was allegedly rigged. In this case, the judge let the breach-of-contract claims and antirust claims proceed to trial but dismissed the other claims.

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US Supreme Court Turns Down Banks’ Bid that It Examine FDIC Case
The U.S. Supreme Court has decided not to review the 2015 ruling made by the Fifth Circuit Court of Appeals that revived the Federal Deposit Insurance Corporation’s (FDIC) securities case accusing Goldman Sachs (GS), Royal Bank of Scotland (RBS), and Deutsche Bank (DB) of misrepresenting the quality of securities it sold to Guaranty Bank, which later failed. The FDIC took the Texas bank into receivership in 2009 and sued the banks in 2014.

A judge in Austin, Tx. dismissed the case, citing a state law requiring that lawsuits be brought within five years of a mortgage-backed security’s sale. The complaint had been filed at least 9 years after the MBSs were sold.

Last August, the Fifth Circuit cited a 1989 federal law and revived the case. The appeals court said that the FDIC is allowed an extended time period to file complaints for institutions that it insures and have gone into receivership. Circuit Judge Carolyn Dineen King wrote that it was this federal law that made it possible for the FDIC to concentrate on dealing with bank failures rather than worrying about possible statutes and their limitations.

RBS, Goldman, and Deutsche then filed their petitioned with the U.S. Supreme Court. The banks pointed to a past holding by the highest court that barred other courts from preempting state law unless the U.S. Congress has made such a preemption clear.

Credit Suisse Resolves MBS Case for $29M
Credit Suisse (CS) must pay $29M to settle the National Credit Union Administration’s claim that it sold bad mortgage-backed-securities to credit unions. NCUA’s lawsuit revolves around MBSs that UBS (UBS) underwrote and sold to Members United Corporate Federal Credit Union and the Southwest Corporate Federal Credit Union for over $228M from ’06 to ’07. Both credit unions have since failed.

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