{"id":5328,"date":"2012-07-14T00:00:00","date_gmt":"2012-07-14T05:00:00","guid":{"rendered":"https:\/\/institutionalinvestorsecuritiesblog.blawgcloud.com\/2012\/07\/goldman_sachs_execution_and_cl"},"modified":"2022-04-28T13:30:44","modified_gmt":"2022-04-28T18:30:44","slug":"goldman-sachs-execution-and-cl","status":"publish","type":"post","link":"https:\/\/www.investorlawyers.com\/blog\/goldman-sachs-execution-and-cl\/","title":{"rendered":"Goldman Sachs Execution and Clearing Must Pay $20.5M Arbitration Award in Bayou Ponzi Scam, Upholds 2nd Circuit"},"content":{"rendered":"

The U.S. Court of Appeals for the Second Circuit is allowing a $20.5M award issued by a Financial Industry Regulatory Authority arbitration panel against Goldman Sachs Execution & Clearing LP <\/a>to stand. The court turned down Goldman\u2019s claim that the award should be vacated because it was issued in \u201cmanifest disregard of the law\u201d and said that the clearing arm must pay this amount to the unsecured creditors of the now failed Bayou hedge fund group known as the Bayou Funds, which proved to be a large scale Ponzi scam<\/a>.<\/p>\n

Goldman was the prime broker and only clearing broker for the funds. After the scheme collapsed in 2005, the Bayou Funds sought bankruptcy protection the following year. Regulators would go on to sue the fund\u2019s funders over the Ponzi scam and the losses sustained by investors. Meantime, an Official Unsecured Creditors\u2019 Committee of Bayou Group was appointed to represent the debtors\u2019 unsecured debtors. Blaming Goldman for not noticing the red flags that a Ponzi fraud was in the works, the committee proceeded to bring its arbitration claims against the clearing firm through FINRA. In 2010, the FINRA arbitration panel awarded the committee $20.58M against Goldman.<\/p>\n

In affirming the arbitration award, the 2nd Circuit said that in this case, Goldman did not satisfy the manifest disregard standard. As an example, the court pointed to the $6.7M that was moved into the Bayou Funds from outside accounts in June 2005 and June 2004. While the committee had contended during arbitration that these deposits were \u201cfraudulent transfers\u201d and could be recovered from Goldman because they were an \u201cinitial transferee\u201d under 11 U.S.C. \u00a7550(a), Goldman did not counter that the deposits weren\u2019t fraudulent or that it was on inquiry notice of fraud. Instead, it claimed the deposits were not an \u201cinitial transferee\u201d under 11 U.S.C. \u00a7550 and the panel had ignored the law by finding that it was.<\/p>\n

Continue Reading \u203a<\/a><\/div>\n","protected":false},"excerpt":{"rendered":"

The U.S. Court of Appeals for the Second Circuit is allowing a $20.5M award issued by a Financial Industry Regulatory Authority arbitration panel against Goldman Sachs Execution & Clearing LP to stand. The court turned down Goldman\u2019s claim that the award should be vacated because it was issued in \u201cmanifest disregard of the law\u201d and […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[3798,3953,3752,3739,3947,3792],"tags":[],"class_list":["post-5328","post","type-post","status-publish","format-standard","hentry","category-arbitration","category-arbitration-rulings","category-financial-firms","category-finra","category-goldman-sachs","category-ponzi-scams"],"yoast_head":"\nGoldman Sachs Execution and Clearing Must Pay $20.5M Arbitration Award in Bayou Ponzi Scam, Upholds 2nd Circuit — Investor Lawyers Blog — July 14, 2012<\/title>\n<meta name=\"description\" content=\"The U.S. Court of Appeals for the Second Circuit is allowing a $20.5M award issued by a Financial Industry Regulatory 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