Judge Rakoff Mocks Goldman, Arbitration

Judge Jed Rakoff, a tough Wall Street critic, aimed his poison pen at Goldman Sachs and the arbitration system in an opinion issued Tuesday.
By Dan Freed ,

NEW YORK (

TheStreet

) --- Judge Jed Rakoff, who has emerged in the wake of the financial crisis as one of Wall Street's toughest critics, aimed his poison pen at

Goldman Sachs

(GS) - Get Report

and the arbitration system in an opinion issued Tuesday.

At issue was a roughly $21 million dispute between Goldman and creditors of Bayou Group LLC, a hedge fund client of Goldman's that fell apart in 2005 after proving to be a Ponzi scheme.

An arbitration panel ruled that Goldman owed the $21 million, which Bayou CEO Samuel Israel had transfered among different Goldman accounts, to Bayou's creditors. Goldman attempted to get a court to throw out the ruling, but U.S. District Court Judge Rakoff upheld it in a Nov. 8 decision.

Explaining his decision in Tuesday's opinion, Rakoff wrote that though "arbitration is touted as a quick and cheap alternative to litigation, experience suggests that it can be slow and expensive. But it does have these 'advantages'; unlike courts, arbitrators do not have to give reasons for their decisions, and their decisions are essentially unappealable."

Goldman, "having voluntarily chosen to avail itself of this wondrous alternative to the rule of reason, must suffer the consequences," Rakoff jibed.

Rakoff attracted widespread attention last year when he rejected a $33 million settlement between

Bank of America

(BAC) - Get Report

and the

Securities and Exchange Commission

after the SEC claimed Bank of America made false and misleading statements to its investors regarding its acquisition of Merrill Lynch. Rakoff later reluctantly approved a larger $150 million settlement, calling it "paltry."

--

Written by Dan Freed in New York

.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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