Smith, a former executive director and head of Goldman’s U.S. equity derivatives business in Europe, the Middle East and Africa, goes on to describe what it takes to be a “leader” at Goldman, Sachs:“What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.” Smith’s op-ed piece describes a culture “where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them.” He then comments about “how callously people talk about ripping their clients off.” According to Smith, Goldman managing directors even refer to their own clients as “muppets.” In a May 18, 2010 New York Times article, anonymous former Goldman insiders discussed Goldman's encouragement "to embrace conflicts [between Goldman and its clients], and argues that they are evidence of a healthy tension between the firm and its customers. If [Goldman employees] are not embracing conflicts, the argument holds, you are not being aggressive enough in generating business." In their FINRA claim, Ms. Dai and Dr. Sutardja allege similar acts by the Private Wealth Management Group at Goldman. According to John Keker of Keker & Van Nest, one of the attorneys for Ms. Dai and Dr. Sutardja, "Our clients' FINRA Claim alleges the same course of conduct as described in Greg Smith's piece in the New York Times. Our clients trusted their Goldman advisors with their entire life savings, and Goldman abused their trust."
NVIDIA : The FINRA Claim states that in the Spring of 2008, with Goldman’s encouragement, Dai purchased shares on margin in a technology company called NVIDIA. The FINRA Claim asserts that Goldman continued to recommend that Dai purchase additional shares in NVIDIA even after she had bought more than $150 million worth of NVIDIA stock.The FINRA Claim provides a clear example of Goldman’s conflicting interests: while Goldman was managing Claimants' assets, including Claimants' position in NVIDIA, Goldman was managing its own stake in NVIDIA. According to the FINRA Claim, on March 31, 2008, Goldman's position in NVIDIA consisted of 9,168,023 shares (including both shares held outright and "call" options). Over the next quarter, at the very time that the FINRA Claim asserts Goldman was urging Claimants to purchase more NVIDIA shares, Goldman actually decreased its own holdings of NVIDIA. On June 30, 2008, Goldman held 3,785,424 shares and call options - a nearly 60% decrease in a single quarter. “Pump-and-dump schemes undermine the integrity of our stock markets,” said Assistant Attorney General for DOJ’s Criminal Division, Lanny A. Breuer. “When stock brokers exploit their trusted positions to enrich themselves at the expense of innocent investors…, we will pursue them vigorously.” Mr. Breuer’s quote was in reference to the Department of Justice’s ongoing investigations of “pump and dump” schemes. The FINRA Claim goes on to allege on September 30, 2008, Goldman's position in NVIDIA consisted of 3,162,225 shares (including both shares held outright and "call" options). Over the next quarter, at the very time that Goldman was forcing Claimants to sell their NVIDIA shares at a massive loss, according to claims made to FINRA, Goldman actually increased its own holdings of NVIDIA. On December 31, 2008, Goldman held 4,894,166 shares and call options - a nearly 55% increase in a single quarter.
Citing clear conflict of interest, the FINRA Claim alleges no one from Goldman ever disclosed to Claimants that Goldman was increasing its holdings in NVIDIA shares, while simultaneously forcing Claimants to sell their NVIDIA shares at a loss. Indeed, according to the FINRA Claim, no one from Goldman ever disclosed to Claimants that it was trading in NVIDIA at all or that it provided investment banking services to NVIDIA.THE HENRY KING INVESTIGATION : According to Bloomberg News and other news sources, Goldman technical analyst Henry King is being investigated for insider trading. King was head of Taiwan Research for Goldman Sachs Asia. The newspaper said King’s activities focused on the flow of information from Taiwan to U.S. investors about the supply chain for personal-computer parts makers from Taiwan. The Wall Street Journal went on to comment that the King investigation “takes the insider-trading investigation inside the research operation of a major Wall Street firm for the first time.” King reportedly spoke regularly to Rajaratnam's Galleon fund, as well as to Level Global, another hedge fund drawn into the insider trading claims. In June, 2008, Goldman “upgraded graphics chipmaker NVIDIA to buy from neutral, saying it now expects near-term business trends to be better than first thought.” This upgrade was “the latest in a series of bullish analysts moves” by Goldman, helping to boost NVIDIA stock by more than 35%. NVIDIA’s stock closed up more than 2.5% at $24.85 on June 5, 2008, after Goldman Sachs analysts boosted the rating to “buy” from “neutral.” At the time, Goldman announced its view that NVIDIA’s “trends in its near-term business are likely to be better than we had expected.” THE EXPERT NETWORKS AND GOLDMAN : In November 2010, the Department of Justice began charging individuals related to Primary Global Research ("PGR"), an "expert networking firm," with allegations of insider trading. Individuals charged include Samir Barai, founder of Barai Capital; Donald Longueuil and Noah Freeman, hedge fund managers SAC Capital; and Winifred Jiau, a PGR consultant and former NVIDIA employee. Barai, Longueil, Freeman, and Jiau conspired to trade securities based on inside information about, among other companies, NVIDIA and Marvell. Barai and Freeman paid PGR thousands of dollars each month for access to Jiau, who, in turn, provided them with detailed inside information about NVIDIA and Marvell. Jiau obtained the inside information from employees at NVIDIA and Marvell. Barai, Longueuil, and Freeman have pleaded guilty to securities fraud. Jiau was tried and convicted of securities fraud in June 2011. Freeman testified for the Government at Jiau's trial and described her inside information as "absolutely perfect." Freeman explained: "She provided us with almost complete financial results before they were announced." Freeman testified that the information was "extremely" helpful in executing trades, and that he made $5 to $10 million trading on the basis of Jiau' s inside information.
Barai Capital was a Goldman client and used Goldman to execute trades based on NVIDIA and Marvell inside information at or around the same time Goldman was forcing Claimants to pledge their Marvell shares as collateral for the margin loan and forcing Claimants to sell the NVIDIA shares purchased with the margin loan.MARGIN CALL : According to the FINRA Claim, Goldman Sachs issued a margin call for the two executives’ investment accounts, which were managed by Goldman Sachs Private Wealth Management Group, under false pretenses, wrongly claiming an SEC Rule mandated the margin call when no such rule existed. It is alleged the margin call was a result of Goldman Sachs’ need to repair its balance sheet and insulate itself from the extreme market turmoil of the financial crisis in 2008. Further, the complaint alleges Goldman Sachs’ wholly improper margin call reflects Goldman Sachs’ willingness to put its own interests ahead of its clients. The FINRA claim alleges: “Through a series of extraordinary and deceitful acts, geared to save Goldman at all costs, the Firm used its clients’ accounts to leverage its success, making unreasonable collateral calls on its private wealth management clients. Despite receiving an investment of $10 billion as a participant in the United States Treasury’s TARP Capital Purchase Program, Goldman forced its clients to unnecessarily liquidate their holdings through forced margin calls, only to repurchase these same shareholdings for accounts owned by Goldman and its related hedge funds, some currently under investigation by the federal government. Goldman’s focus was to strengthen its balance sheet, no matter how many relationships were destroyed in the process. The consequences to Goldman clients, such as Plaintiffs, were disastrous. They became the victims of one of the largest acts of corporate greed and avarice in the history of our financial markets.” (Page 2, Weili Dai and Sehat Sutardja v. Goldman Sachs & Co., Inc., et al.)
As alleged in the FINRA claim, Plaintiffs were told by Goldman Sachs that orders for the margin call were issued from Goldman Sachs’ most senior executives. The FINRA claim alleges the margin call was issued during the exact same time frame the now infamous Raj Rajaratman and other employees of the Galleon hedge fund were perpetrating mass insider trading using information obtained from Goldman Board members. According to the SEC investigation, Rajaratman received inside information from the highest levels of Goldman regarding Marvell in 2008—the same time Plaintiffs were improperly forced to sell their Marvell shares.NO SEC FIVE DOLLAR RULE : An important allegation in the FINRA Claim is Goldman contrived a margin call based on a mythical “SEC Five Dollar Rule.” As with Smith’s New York Times op-ed piece, Ms. Dai and Dr. Sutardja’s FINRA Claim contends: “In November 2008, Goldman contrived grounds to issue a margin call on Claimants' accounts. Goldman insisted that Marvell shares had to be sold immediately. Acting on behalf of Goldman, [Bradley] DeFoor justified the margin call with a lie, telling Dai and Sutardja there was an SEC rule that DeFoor called the ‘SEC Five Dollar Rule.’ According to DeFoor, the ‘SEC Five Dollar Rule’ required Claimants to sell the Marvell shares in the margin account because the value of Marvell's stock had dropped below $5 per share.” “There is no ‘SEC Five Dollar Rule,’ a fact DeFoor and others at Goldman knew at the time they issued the immediate margin call on behalf of Goldman. Goldman maintained this ‘SEC Five Dollar Rule’ lie for years. As recently as November 2010, senior Goldman officials John Weinberger and Tucker York told Dai and Sutardja the ‘Five Dollar Rule’ was a ‘New York Stock Exchange’ rule, not an SEC rule. According to these senior Goldman executives, the NYSE's ‘Five Dollar Rule’ required the Marvell shares be sold because their value had dropped below $5 per share. No such NYSE ‘Five Dollar Rule’ exists, as Weinberger and York well knew.”
“When Sutardja questioned DeFoor about the need to sell Claimants' Marvell shares, DeFoor told him his instructions came from ‘the highest levels at Goldman’ in New York.” (Page 4, Weili Dai and Sehat Sutardja v. Goldman Sachs & Co., Inc., et al.)In a September 22, 2011 letter, Mary L. Schapiro, Chairman of the Securities and Exchange Commission, wrote: “There is currently no rule that requires the sale of shares in a margin account if the market value of the shares falls below $5.00." Chairman Schapiro's letter was written in response to an inquiry from Congresswoman Anna Eshoo (D-CA) (see Attachment). UNLAWFUL RETITLING OF MARVELL SHARES : According to the FINRA Claim, in January, 2008, Goldman insisted Ms. Dai and Dr. Sutardja re-register 25,000,000 shares of Marvell stock into Goldman’s name, for the benefit of Ms. Dai and Dr. Sutardja, to secure the margin loan so that Dai could continue to purchase shares on margin. The FINRA Claim also alleges when shares of NVIDIA dropped in July, 2008, Goldman requested even more shares owned by Ms. Dai and Dr. Sutardja in Marvell be re-registered in Goldman’s name for the benefit of Ms. Dai and Dr. Sutardja. Goldman assured Ms. Dai and Dr. Sutardja, as set forth in the FINRA Claim, that their Marvell stock was perfectly safe as collateral and they would not have to sell it due to the margin loan. Based on Goldman’s assurances, Ms. Dai and Dr. Sutardja allege in the FINRA Claim that they re-registered another 3,100,000 shares of Marvell stock into Goldman’s name. Without notice or consent from Ms. Dai or Dr. Sutardja, the FINRA Claim asserts Goldman re-titled close to 30,000,000 of their shares into Goldman’s name alone. The re-registration did not indicate it was for the benefit of Ms. Dai and Dr. Sutardja. The claims of Ms. Dai and Dr. Sutardja include allegations that this transfer was unauthorized and completely unnecessary because Ms. Dai and Dr. Sutardja had already pledged more than sufficient collateral for their securities holdings with Goldman. According to their claims, Goldman’s sole purpose in re-titling these Marvell shares was to create liquidity to drive their proprietary trading in Marvell shares, and their transactions with affiliated hedge funds in Marvell shares. As illustrated in their claims, the timing of these transfers indicates Goldman re-titled Ms. Dai and Dr. Sutardja’s Marvell shares, without their consent, as part of the broader insider trading ring of which Ms. Dai and Dr. Sutardja now find themselves victims.
These problems with the re-titling of their shares in Goldman’s name were only recently discovered in April, 2011 by Ms. Dai and Dr. Sutardja. According to Ms. Dai and Dr. Sutardja, Goldman kept Claimants’ Marvell shares titled in Goldman’s name years after they stopped trading on margin.The FINRA Claim was filed by two San Francisco area law firms, KEKER & VAN NEST LLP and COTCHETT, PITRE & McCARTHY, LLP - brought by John Keker and Joseph Cotchett. The suit seeks return of several hundreds of millions of dollars and punitive damages.
|Barbara Abulafia||Philip L. Gregory|
|Keker & Van Nest LLP||Cotchett, Pitre & McCarthy, LLP|
|710 Sansome Street||840 Malcolm Road|
|San Francisco, California 94111||Burlingame, CA 94010|
|Telephone: (415) 391-5400||Telephone: (650) 697-6000|