Judge Upholds Award Against Goldman

November 8, 2010, 11:29 am — Updated: 3:44 am -->Investment Banking Legal/Regulatory
By SUSANNE CRAIG
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new_york_times:http://dealbook.nytimes.com/2010/11/08/judge-upholds-award-against-goldman/
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A federal judge on Monday denied a request by the investment firm Goldman Sachs to throw out a record-setting arbitration award that was levied this year.
Goldman was ordered in June to pay $20.6 million to unsecured creditors of the failed hedge fund manager Bayou Group to settle claims that the bank had ignored signs of fraud at the fund.
The bank appealed the decision in July, and on Monday, Judge Jed S. Rakoff of Federal District Court in Lower Manhattan rejected Goldman’s request to vacate the award.
“After full consideration of the parties’ briefs and oral argument, the court hereby denies the petition to vacate the arbitration award and grants the cross-petition to confirm the award,” Judge Rakoff wrote. “However, final judgment will not be entered in this case until the court issues an opinion setting forth the reasons for this ruling.”
A Goldman spokesman declined to comment on Monday.
Ross Intelisano, a partner at New York law firm Rich & Intelisano who represented Bayou creditors, said, “We are looking forward to investors finally getting some of their money back from this tragic fraud.”
Bayou collapsed in 2005, and the firm’s former chief executive,Samuel Israel III, is serving 20 years in prison for fraud. Mr. Israel pleaded guilty to misrepresenting the value of Bayou’s funds and defrauding clients out of more than $400 million. Goldman cleared trades for Bayou, which was based in Connecticut, before it collapsed. Bayou’s unsecured creditors’ committee filed the arbitration claim against Goldman in 2008.
During the arbitration, Goldman denied accusations that it had ignored signs of wrongdoing. Goldman is not out of options; it can appeal the decision to the United States Court of Appeals for the Second Circuit.
The award was considered a watershed and could have ramifications across the financial sector.
Wall Street firms, which handle billions of dollars in trades, assert that their job is simply to clear trades, not police the clients. If upheld, the award could raise the standard among banks for clearing trades.