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May 05, 2010
Pension Funds Sue Goldman Sachs Over Abacus
    by Robert Kropp

Three pension funds allege breaches of fiduciary duties by Goldman Sachs, and a law firm files a class action lawsuit on behalf of investors.

Following last month’s complaint by the Securities and Exchange Commission (SEC), charging Goldman Sachs and one of its vice presidents with defrauding investors, two pension funds have amended earlier lawsuits over executive compensation at the firm to include the new charges.

According to a revised
Form 8-K filed with the SEC by Goldman Sachs, the pension funds of the Southeastern Pennsylvania Transportation Authority (SEPTA) and the International Brotherhood of Electrical Workers Local 98 have filed actions “alleging claims for breach of fiduciary duty, corporate waste, abuse of control, mismanagement and unjust enrichment in connection with collateralized debt obligation offerings made between 2004 and 2007.”

In addition, the complaint by the pension funds challenges the “the accuracy and completeness” of Goldman Sachs’ disclosure. Although the firm received a formal Wells notice from the SEC in July 2009 indicating that the Commission intended to press charges, it did not disclose the information to shareowners until the charges were filed on April 16. Apparently, Goldman Sachs concluded that the impending charges were not of material interest to investors.

A second lawsuit was filed by the
Louisiana Municipal Police Employees Retirement System (MPERS), alleging “breaches of fiduciary duties and other misconduct by certain other officers and directors of the Company.” When the SEC lawsuit was announced, Goldman Sachs’ stock lost $12 billion in market value.

The New York law firm of Wolf Popper has filed a class action lawsuit against Goldman Sachs on behalf of investors who purchased Goldman stock between August 5, 2009 and April 16, 2010, indicating that the failure of Goldman Sachs to inform investors of the Wells notice from the SEC led to substantial losses for the investors.

The SEC suit alleges that Goldman Sachs created an investment vehicle called ABACUS 2007-AC1 at the request of Paulson & Co., one of the world's largest hedge funds. John Paulson, the manager of the hedge fund, selected the component mortgage bonds of ABACUS because he believed their credit ratings were too high and they were likely to lose money.

Goldman Sachs then sold ABACUS to investors without informing them of Paulson's role in the creation of the product. Investors in ABACUS lost more than $1 billion.


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