Financial Regulatory Forum

Goldman Getting Ahead of Bad News?

May 5, 2010

Goldman Sachs’s disclosure pendulum appears to have now sharply swung in the other direction, Matthew Merrin of Thomson Reuters Westlaw Business Currents writes.

In so doing, Goldman may be charting a new course for itself, and arguably for the broader world of besieged public companies, by disclosing, with detailed exhibits, the filing of several lawsuits against the firm’s leadership. This extensive disclosure stands in marked contrast to its much-criticized decisions to not disclose its 2009 receipt of a Wells Notice from the SEC, among other things.
On its face, this move seems intended to help Goldman get ahead of the steady drip of bad news and lawsuits. While certainly more forthcoming than the once-reticent bank has been, even this apparent openness is selective. The lawsuits by the shareholders were in response to a complaint filed by the SEC…yet the SEC’s own filing is not attached. Likewise, a class action recently filed by named plaintiff Ilene Richman (representing a class of allegedly harmed shareholders in the firm) is also not attached. Both are alluded to in subtle descriptions in the disclosure text itself.
In particular, Goldman has disclosed that multiple shareholders have filed a succession of derivative lawsuits against certain officers and each member of the board of directors. The lawsuits come on the heels of the SEC filing last month charging Goldman Sachs with fraud. The shareholders are accusing Goldman Sachs of failure to implement risk management controls while engaging in the offer and sale of the ABACUS 2007-AC1offering, a complex synthetic collateralized debt obligation. The lawsuits also accuse Goldman of breach of fiduciary duty and corporate waste. Goldman Chairman and CEO Lloyd C. Blankfein has also been named in some of the lawsuits.
Goldman has also been criticized for its failure to disclose to shareholders its receipt of a Wells Notice regarding the ABACUS 2007- AC-1 offering. According to the recent SEC filing, Goldman expects further shareholder lawsuits.
To remind, the original claims against Goldman stem from SEC accusations that the firm failed to notify investors that the securities underlying the synthetic collateralized debt obligation were selected by John Paulson, a billionaire hedge fund investor, which were betting on the CDO to lose value.

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