Goldman’s Blankfein Sued by Investors Over SEC Claims

Let the cannibalism begin..

http://www.bloomberg.com/apps/news?pid=20601087&sid=acwVfK8iybLs&pos=3

April 23 (Bloomberg) -- Goldman Sachs Group Inc.’s top executives, including Chairman and Chief Executive Officer Lloyd Blankfein, were sued by investors in two lawsuits filed on behalf of the firm over government fraud allegations.

The investors, Morton Spiegel and Robert Rosinek, said in complaints filed yesterday in New York State Supreme Court in Manhattan that Goldman Sachs officers and directors breached their duty to the company by permitting it to enter into a series of collateralized debt obligations tied to subprime mortgages. One of those CDOs is the subject of a lawsuit against the New York-based firm by the U.S. Securities and Exchange Commission.

According to the derivative complaints, Blankfein and the other defendants failed to exercise oversight of the deals, exposing Goldman Sachs to billions of dollars in possible liability and damage to its reputation.

“As a result of the individual defendants’ unlawful course of conduct and breaches of fiduciary duties, Goldman Sachs has sustained substantial economic losses, and has had its reputation in the business community and financial markets irreparably tarnished,” the investors claimed in the complaints.

SEC Case

The SEC’s case centers on whether the firm should have told investors that hedge fund Paulson & Co. helped pick underlying securities in a CDO -- and then bet against it. Paulson wasn’t accused of wrongdoing. The SEC allegations sparked a 13 percent, one-day decline in Goldman Sachs shares. Michael DuVally, a spokesman for Goldman Sachs, didn’t immediately return a message seeking comment on the new lawsuits. The firm has said it will fight the SEC case.

The derivative lawsuits, which are a type of litigation filed on behalf of a company against its officers and directors, seek a court declaration that the firm’s top executives violated their fiduciary duties to the company, plus unspecified damages. Such lawsuits often result in internal corporate governance changes and the payment of attorneys’ fees.

In addition to naming top Goldman management, the suit names Goldman banker Fabrice Tourre, who was sued by the SEC.

American International Group Inc. is the lead insurer of the Goldman Sachs board against shareholder suits, according to a person with knowledge of the policy. AIG may therefore have to pay the defense costs in the suit in addition to any verdict or settlement.

Class-Action Suit

Goldman already faces a class-action securities lawsuit over mortgage securities in federal court in New York. The Public Employee’s Retirement System of Mississippi sued Goldman in federal court in Manhattan saying the bank misrepresented the value of $2.6 billion in mortgage securities. The bank misled investors about the value of the underlying mortgages, according to court papers.

“As a result of these untrue statements and omissions in the offering documents, plaintiff and the class purchased certificates that were far riskier than represented and that were not of the ‘best quality,’ or even ‘medium credit quality,’ and were not equivalent to other investments with the same credit ratings,” the Mississippi retirees said in an amended complaint filed in September.

The cases are Rosinek v. Blankfein, 650318-10, and Spiegel v. Blankfein, 650319-10, New York State Supreme Court (Manhattan).

To contact the reporter on this story: Bob Van Voris in New York at rvanvoris@bloomberg.net

Last Updated: April 23, 2010 18:11 EDT

 

"American International Group Inc. is the lead insurer of the Goldman Sachs board against shareholder suits, according to a person with knowledge of the policy. AIG may therefore have to pay the defense costs in the suit in addition to any verdict or settlement."

GS: Did you hedge this variable?

AIG: Uhh....

 

I wonder if the book "The Big Short" published by Michael Lewis a month ago has anything to do with all of these new lawsuits?

http://www.amazon.com/Big-Short-Ins...0393072231/ref=pd_ts_b_5?ie=UTF8&s=books#noop

 

Clearly politically motivated, someone get that uncorruptable Miss. Darrel Issa on the phone to help end this madness.