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This scandal is imploding in a way that will eventually reveal more than we would have suspected.
Original Post By:
May 05, 2010
General counsel Gregory Palm of Goldman Sachs Group Inc. late Monday made a rare filing with the government, revealing at least six shareholder suits against the company over its dealings in the subprime mortgage market, and one highly critical letter from an institutional shareholder.
The filing made no direct reference to a rumored Justice Department criminal investigation. But it did say the company anticipates that additional shareholder actions “and other litigation may be filed, and regulatory and other investigations and actions commenced, with respect to offerings of collateralized debt obligations.”
Palm made the disclosures in an 8-K report (pdf) to the Securities and Exchange Commission. The filing came after shareholders had questioned Palm in a recent quarterly conference call about why the company hadn’t revealed a civil investigation by the SEC over Goldman’s role in the CDOs.
Monday’s filing said that since the SEC filed suit (pdf) against Goldman on April 15, several putative shareholder derivative actions have been filed in New York Supreme Court and U.S. District Court in Manhattan against the company, its board of directors, and certain officers and employees.
Palm and Goldman have previously denied any wrongdoing. A Goldman spokesman Tuesday said the company would not comment on the filing or the suits.
The shareholder suits generally allege “claims for breach of fiduciary duty, corporate waste, abuse of control, mismanagement and unjust enrichment in connection with collateralized debt obligation offerings made between 2004 and 2007,” the filing said.
The complaints also challenge “the accuracy and completeness of GS Inc.’s disclosure,” it said, which may be why the company decided to disclose them. Copies of the suits were included with the filing.
The complaints seek, among other things, declaratory relief, unspecified money damages, restitution, and corporate governance reforms. The filing also included a shareholder suit in the Delaware Court of Chancery relating to compensation levels for 2009, which was amended to include allegations similar to the five actions in New York.
In another unusual move, the company disclosed a critical shareholder demand letter in its filing. The letter, from counsel for the Louisiana Municipal Police Employees Retirement System, accused Goldman’s top officers and directors — including Palm and his co-general counsel Esta Stecher — “with breaching their fiduciary duties and other misconduct.”
The retirement fund relies on its holdings of shares of Goldman Sachs and other companies to provide benefits to thousands of police personnel throughout Louisiana, wrote lawyer Albert Myers, a partner in the New York office of Kahn Swick & Foti. The letter was a follow-up to a Sept. 2, 2009, demand that the company take action to remedy the breaches and misconduct.
The letter accused the named individuals of causing “Goldman Sachs to deceive investors and shareholders, otherwise violated their duties, and thereby caused Goldman Sachs to suffer substantial harm.” And it demanded that the board take steps to investigate, discipline, and file suit against the individuals.