A securities arbitration panel has ordered Goldman Sachs Execution & Clearing LP and Spear Leeds & Kellogg LP to pay nearly $21 million to unsecured creditors of the Bayou Group LLC, according to an award.
The Official Unsecured Creditors' Committee of Bayou Group LLC filed the case against the two units of Goldman Sachs Group Inc. (GS) in May 2008 alleging fraud, failure to investigate fraud, and fraudulent transfers related to the Bayou hedge funds. The funds were discovered to be a fraud, with Bayou's former chief executive, Samuel Israel III, pleading guilty in 2005 to defrauding clients out of more than $400 million.
A Financial Industry Regulatory Authority, or Finra, arbitration panel entered the award on Thursday. It didn't provide any reasoning for its decision. It found the two units jointly liable for the creditors' alleged damages. The sum reflected the full amount sought by the creditors, according to the award.
A Goldman Sachs spokesman said the company is disappointed with the award and is considering its options. A lawyer for the Bayou unsecured creditors didn't immediately return a call requesting comment.
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