Shareholders Sue Goldman Sachs

April 26, 2010 Updated: October 1, 2015

Financial professionals in the Goldman Sachs booth on the floor of the New York Stock Exchange at midday watch President Obama give a speech about Wall Street financial reform on April 22, in New York.  (Chris Hondros/Getty Images)
Financial professionals in the Goldman Sachs booth on the floor of the New York Stock Exchange at midday watch President Obama give a speech about Wall Street financial reform on April 22, in New York. (Chris Hondros/Getty Images)
The legal team who won the largest class-action suit in securities law representing Enron investors is suing Goldman Sachs Group Inc. on behalf of its shareholders.

The lawsuit seeks damages against the company for an alleged lack of transparency in terms of risky transactions that caused civil fraudulent charges and a plunge in its stock price.

On April 26, the lawsuit was filed in Manhattan Federal Court by the San Diego-based law firm Robbins Geller Rudman & Dowd LLP alleging that Goldman deliberately misled investors by providing false information about a 2007 collateralized debt obligation relating to subprime mortgages that authorities have claimed that the deal in itself was destined to fail. The case is under Richman v. Goldman Sachs Group Inc., 10-03461, U.S. District Court, Southern District of New York (Manhattan).

The source of the litigation stems from the accusation that Goldman did not report a Wells notice related to the potential civil charges over Abacus in July 2009. The notice is a formal announcement from the U.S. Securities and Exchange Commission (SEC) when it is planning to bring an enforcement action against an individual or firm.

The issue surrounding the failed portfolio Abacus 2007-AC1 is that Goldman caused shareholders to buy the stock at artificially inflated prices, although Abacus was recommended by billionaire hedge fund investor John Paulson, who was betting against the securities. Although Paulson profited $1 billion on Abacus, this is equivalent to the estimated loss of the other investors. There are presently no charges against Paulson.

The suit charges that Goldman’s shares were trading at unrealistically high levels, however, by April 16 the stock declined almost 13 percent on news that the firm is being sued by the SEC, causing investors a loss of $12 billion.

Moreover, investors have complained that due to the Abacus deal, Goldman did not accurately portray the overall financial health of the bank to shareholders. Finally, the SEC was to embark on an investigation, and such crucial information was also not relayed to investors.

“As news of Goldman’s misconduct reached the market, Goldman stock immediately plummeted $24.04” to close at $160.70 on April 16, according to the complaint. Investor Ilene Richman filed the lawsuit on behalf of others who bought Goldman Sachs shares from Oct. 15 to April 16.

Defendants names in the lawsuit include Goldman Sachs Chief Executive Officer Lloyd C. Blankfein, Chief Financial Officer David A. Viniar, and President Gary D. Cohn.

“Defendants omitted and/or misrepresented material facts concerning Goldman’s participation in structuring the CDO to help one client who was short the CDO while simultaneously selling the CDO to another client,” according to the lawsuit documentation.

Goldman Shares closed down $5.37, or 3.4 percent, at $152.03 in afternoon trading on the New York Stock Exchange on Monday.