Goldman Sachs has been fined $20.5 million by U.S. regulator FINRA, over its involvement in the Bayou hedge fund fraud. In a FINRA Dispute Resolution document on 24 June, Goldman Sachs Execution & Clearing was accused of fraud, failure to investigate the fraud, and fraudulent transfers.
Bayou Group collapsed in 2005, after the Commodity Futures Trading Commission accused the hedge fund of misappropriation and unauthorised trading to the tune of $450 million.
The lawyers representing Bayou Group, Rich & Intelisano, filed the claim for the Bayou bankruptcy estate in 2008. Goldman denied the claims, and according to court papers obtained by Reuters, argued that “unlike the paradigmatic fraudulent transfer — where a debtor gratuitously conveys assets to a relative, close friend, or other ally in order to frustrate his creditors — the ‘transferred’ money was never conveyed to GSEC.
“Rather, it remained in the dominion and control of the Bayou funds all along, simply being shifted among those funds’ own accounts as they directed”.
The case against Goldman Sachs is the second victory for Rich & Intelisano on behalf of Bayou investors. In 2007, the New York settled a multi-million dollar group arbitration at the American Arbitration Association related to Bayou versus a registered investment advisor for failing to do proper due diligence.
According to the Wall Street Journal, it is the largest arbitration claim settled against Goldman Sachs.