Log In

Reset Password

Wall Street giant discloses information about lawsuits

NEW YORK (AP) — Goldman Sachs has disclosed information about a half-dozen lawsuits filed against it by shareholders accusing the big Wall Street firm and senior executives of misconduct and abuse in the wake of civil fraud charges brought by the government over mortgage securities deals.

The detailed disclosures came in a regulatory filing by the firm on Monday with the Securities and Exchange Commission. Goldman, the most powerful firm on Wall Street, has been criticised for making less than complete public reporting of legal challenges.

Last summer, for example, the firm didn't disclose that it had received a notice from the SEC staff that the agency was considering filing charges against it — a disclosure that would have been voluntary under SEC rules but concerned an event that could be considered significant to shareholders.

Goldman's lengthy filing notes that the litigation by shareholders makes claims against the firm and its executives of "breach of fiduciary duty, corporate waste, abuse of control, mismanagement and unjust enrichment".

It also challenges the accuracy and completeness of the firm's past disclosures. The shareholders are seeking damages, restitution and corporate government reforms by the firm.

Lawsuits by shareholders have multiplied and shares of Goldman Sachs Group Inc. have plummeted since news on April 16 of the SEC's civil lawsuit against the firm and a trader, Fabrice Tourre. That was followed by a Senate hearing last Tuesday at which Goldman executives, including CEO Lloyd Blankfein, were grilled and publicly rebuked by indignant lawmakers. Then came word on Thursday that the Justice Department had opened a criminal investigation of Goldman in connection with mortgage securities transactions it arranged in the run-up to the subprime mortgage meltdown in 2007.

The inquiry by federal prosecutors in Manhattan is in a preliminary stage and it is far from certain that it will result in criminal charges being brought.

Goldman shares plunged nine percent last Friday to $145.20. That was the day after the criminal inquiry became known, and following Standard & Poor's analysts' downgrade to "Sell" from "Hold" and reduction of their target price for Goldman by $40, to $140 a share.

The stock recovered in trading on Monday, finishing at $149.50 — still far below the $184 level it reached on April 15, the day before the SEC charges were filed.

The SEC alleged that Goldman misled investors in 2006-2007 by failing to tell them the mortgage securities had been chosen with help from a Goldman hedge fund client, Paulson & Co., which was betting the investments would fail. Goldman and Tourre have denied wrongdoing and said they will contest the allegations in court.

Financial analyst Richard Bove, at Rochdale Research, said in a note on Monday that Goldman's senior executives are likely to be ousted because of their "ineptitude" in responding to the SEC's allegations of misleading investors in the subprime mortgage securities transactions. Bove, however, maintained a "buy" rating and a $200 price target for Goldman shares, saying he still is refusing to sell the battered stock.

Bove wrote that Goldman "is likely to be supported even more strongly by its clients" following the bad publicity the firm has suffered over the SEC charges and contentious Senate hearing.

At the same time, Bove said, Goldman has hurt itself by saying "as close to nothing as possible" in response to the allegations.

"Goldman is going to have to pay a high price for its ineptitude in handling this issue," he said. "Its shareholders already have."

The firm's annual shareholder meeting is scheduled for Friday.