Goldman Sachs Group Inc.(GS) is in the news again for all the wrong reasons. The company and some of its top officers and directors have been charged with securities fraud, and a class action lawsuit has already been filed by the Pomerantz Haudek Grossman & Gross LLP in the United States District Court, Southern District of New York.
The securities fraud lawsuit, which was filed on behalf of the purchasers and receivers of Goldman notes and/or bonds, alleges that the company violated sections 10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5 promulgated under it during the period from December 14, 2006 to June 9, 2010.
Goldman has been charged with providing false and misleading facts regarding its business model and the reasons for its accomplishments during the class period. The company also allegedly failed to disclose the receipt of a Wells Notice from the Securities and Exchange Commission (SEC) in July 2009. A Wells Notice is a letter that the SEC sends to people or firms when it is planning to bring an enforcement action against them.
The securities fraud lawsuit alleges that as a result of such misstating of facts, the company’s securities had been trading during the relevant period at prices that were artificially puffed up. Following its exposure, the price of Goldman securities dropped substantially.
A few days ago, the SEC postponed Goldman’s trial date for civil-fraud litigation to July 19, 2010 from June 21, 2010. Goldman had been charged by the SEC for misstating facts and selling poor quality subprime investments to its customers in 2006, without disclosing the risk factors, including the vital role of Paulson & Co., a prime hedge fund, in the portfolio selection process.
Additionally, the SEC accused the investment bank of creating a collateral debt obligation (CDO) called Abacus 2007-AC1, which comprised mortgage-backed securities.
Following up on its civil fraud litigation against Goldman, the SEC is also planning to probe into the investment practices of other industry giants such as Bank of America Corp. (BAC), Citigroup Inc. (C) and JPMorgan Chase & Co. (JPM).
While we believe that Goldman is well positioned to reap the benefits of its strategic cost-balancing initiatives and attractive business mix, we think that such allegations and charges against the company somewhat dampen investors’ confidence in the stock.
Also, if such charges are affirmed, the company needs to initiate damage control and incur huge charges. Therefore, such issues are not only a blow to the company’s reputation, but also a dent in its financials.
Read the full analyst report on “GS”
Read the full analyst report on “BAC”
Read the full analyst report on “C”
Read the full analyst report on “JPM”
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