Goldman Sachs says it expects even more lawsuits

Goldman Sachs Group Inc. disclosed Monday that it has received notices of investigations from FINRA and from the United Kingdom Financial Services Authority regarding its subprime mortgage dealings.

The company also revealed, in its quarterly filing with the Securities and Exchange Commission, that it has received requests for information from other unnamed regulators regarding the so-called CDO (collateralized debt obligation) offerings.

The SEC filed a civil complaint (pdf) against Goldman and one of its traders on April 16 over one CDO deal that occurred in 2007. The SEC alleged that Goldman made materially false and misleading statements to investors about the deal and seeks unspecified monetary penalties.

News reports claim Goldman is trying to settle the SEC suit even as the Department of Justice considers a criminal investigation.

In Monday's filing, Goldman didn't mention any criminal probe but said it could face an "injunction, a cease-and-desist order or a finding of fraud." The outcome could affect how it does business, the filing said, including "an inability to act as a registered broker-dealer or provide certain advisory and other services" as well as possible restrictions on its banking and other businesses.

Among other probes mentioned, Goldman said that government and regulatory bodies are reviewing its conduct relating to the 2008 financial crisis, "including the establishment and unwind of credit default swaps between Goldman Sachs and American International Group Inc. and other transactions" with AIG, The Bear Stearns Companies Inc., Lehman Brothers Holdings Inc. and others.

It said the company is also under review by various government and regulatory bodies in connection with transactions with Greece, including financing and swap transactions. Goldman said it is cooperating with the investigations and reviews.

And on top of all that, the filing said since April 23, the board of directors has received letters from shareholders demanding that the board take action to address alleged wrongdoing. The demands generally allege misconduct in connection with the 2007 CDO transaction, with Goldman's failure to adequately disclose the SEC investigation before the civil action, and with Goldman's 2009 compensation practices. The company already faces shareholder suits (pdf) over its 2007 and 2008 compensation practices.

In addition, beginning April 26, a number of securities law class actions have been filed in U.S. District Court in Manhattan alleging the firm made inadequate disclosure in the CDO market and of the SEC's investigation.

And there will be more. "We anticipate that additional putative shareholder derivative actions and other litigation may be filed, and regulatory and other investigations and actions commenced, against us with respect to offerings of CDOs," the filing said.

(Published by Law.com – May 11, 2010)