Goldman Sachs Group Inc has been ordered to pay US$20.6 million to scammed investors who say the investment bank should have known about the pyramid scheme pulled off by the collapsed Bayou Hedge Funds.
A three-person arbitration panel of the Financial Industry Regulatory Authority (FINRA) held the bank’s Goldman Sachs Execution Clearing unit, formerly known as Spear Leeds & Kellogg, liable in the dispute.
Stamford, Connecticut-based Bayou collapsed in 2005, after the firm’s then-CEO Samuel Israel III and chief financial officer Daniel Marino admitted they lied about the company’s profits and set up a fake accounting firm to falsify audits.
The US$20.6 million award represents the money Bayou deposited into its accounts at Goldman, said attorney Ross Intelisano of Rich Intelisano LLP, a New York firm that represents investors in securities cases. Goldman handled all of the hedge fund’s trading between 1999 and 2004, when it stopped trading altogether, he said.
The fraud totaled about US$250 million. The victims were mostly individuals who invested relatively modest amounts, about US$300,000 to US$500,000, Intelisano said. They were promised annual returns of 10 percent to 12 percent. Goldman maintained in its response in the case that the defrauded investors were “institutional and other highly sophisticated investors.”
The Goldman money, when added to other funds recovered, will result in the investors getting back a total of about half of what they lost, Intelisano said.
The case, heard by the FINRA panel, centered on the Bayou investors’ claim that Goldman either knew or should have known of the deception, because it had marketing materials claiming consistent investment gains as well as account records showing losses.
“They should have done an investigation,” Intelisano said. “They would have discovered, at least, that there was something wrong.”
Goldman, in its response in the case, maintained it never controlled the funds in question or offered investment advice to Bayou, but merely processed the trades made by Bayou. The investment bank said it did not know of the fraud and was not required by law to investigate its account holders.
“We are disappointed with the award and are considering our options,” Goldman spokesman Ed Canaday said.
Arbitration cases are rarely overturned, however. Intelisano maintains that the award will encourage other brokers and clearing houses to act if there is an indication their clients engage in questionable activity.
“I don’t think that this is the last time that someone’s going to steal money at a hedge fund,” he said.
Israel and Marino pleaded guilty in 2005 to conspiracy, investment adviser fraud and mail fraud. Israel was sentenced to 20 years in jail for his role in the scheme and then staged his own suicide in 2008 in an attempt to avoid serving the time. He turned himself after a month on the lam.
ROLLER-COASTER RIDE: More than five earthquakes ranging from magnitude 4.4 to 5.5 on the Richter scale shook eastern Taiwan in rapid succession yesterday afternoon Back-to-back weather fronts are forecast to hit Taiwan this week, resulting in rain across the nation in the coming days, the Central Weather Administration said yesterday, as it also warned residents in mountainous regions to be wary of landslides and rockfalls. As the first front approached, sporadic rainfall began in central and northern parts of Taiwan yesterday, the agency said, adding that rain is forecast to intensify in those regions today, while brief showers would also affect other parts of the nation. A second weather system is forecast to arrive on Thursday, bringing additional rain to the whole nation until Sunday, it
LANDSLIDES POSSIBLE: The agency advised the public to avoid visiting mountainous regions due to more expected aftershocks and rainfall from a series of weather fronts A series of earthquakes over the past few days were likely aftershocks of the April 3 earthquake in Hualien County, with further aftershocks to be expected for up to a year, the Central Weather Administration (CWA) said yesterday. Based on the nation’s experience after the quake on Sept. 21, 1999, more aftershocks are possible over the next six months to a year, the agency said. A total of 103 earthquakes of magnitude 4 on the local magnitude scale or higher hit Hualien County from 5:08pm on Monday to 10:27am yesterday, with 27 of them exceeding magnitude 5. They included two, of magnitude
CONDITIONAL: The PRC imposes secret requirements that the funding it provides cannot be spent in states with diplomatic relations with Taiwan, Emma Reilly said China has been bribing UN officials to obtain “special benefits” and to block funding from countries that have diplomatic ties with Taiwan, a former UN employee told the British House of Commons on Tuesday. At a House of Commons Foreign Affairs Committee hearing into “international relations within the multilateral system,” former Office of the UN High Commissioner for Human Rights (OHCHR) employee Emma Reilly said in a written statement that “Beijing paid bribes to the two successive Presidents of the [UN] General Assembly” during the two-year negotiation of the Sustainable Development Goals. Another way China exercises influence within the UN Secretariat is
Taiwan’s first drag queen to compete on the internationally acclaimed RuPaul’s Drag Race, Nymphia Wind (妮妃雅), was on Friday crowned the “Next Drag Superstar.” Dressed in a sparkling banana dress, Nymphia Wind swept onto the stage for the final, and stole the show. “Taiwan this is for you,” she said right after show host RuPaul announced her as the winner. “To those who feel like they don’t belong, just remember to live fearlessly and to live their truth,” she said on stage. One of the frontrunners for the past 15 episodes, the 28-year-old breezed through to the final after weeks of showcasing her unique