Next up for Goldman (and probably others)?

I am fascinated with the Goldman-SEC case that continues to be the center of discussion for many across the globe.  In my efforts to better understand the nature of the CDO and it's classification as a "security" under Securities Law, I am uncovering some interesting insight in the process.  At www.seclaw.com there are a number of useful documents providing insight into this case and other issues.  There were untold billions lost in other CDO deals, including those that originated at Goldman.  CDOs were not a core business of Goldman, more so for Merrill and others.  The information coming out of Goldman-SEC case may provide the basis to further open additional cases for CDO investors that lost.

Potential Goldman Sachs And CDO Lawsuits

The investigations will lead to to major types of lawsuits:

1. Goldman Sachs Shareholders. With Goldman’s stock down some 13% on the day of the announcement, we can expect to see a number of shareholder derivative suits, with increasing damage claims should the shares continue to decline. Shareholder derivative suits – brought by shareholders on behalf of the company - will undoubtedly be filed against Goldman, and its board of directors, for exposing the company to financial and reputation damage, and the resulting losses..

2. Goldman Sachs Customer Claims. A second group of claims will be by individual and institutional investors who purchased the CDO at issue directly from Goldman Sachs. Those investors will have the easiest time of proving liability and damages, since the SEC fraud at the moment, involved Goldman Sachs directly. If the investor purchased in a Goldman Sachs account, the liability for the losses in the product are easier to establish.

3. CDO Investor Claims Against Goldman Sachs. Investors who purchased the CDO through other brokerage firms may have claims against Goldman Sachs, despite the fact that they did not purchase the product from Goldman Sachs directly. Those customers will need to file claims in court, as there will be no arbitration agreement between them and the firm, but the SEC case will provide the roadmap for the prosecution of that claim. Goldman Sachs will undoubtedly be forced to defend investor claims in federal courts across the country as these events unfold.

4. Investor Claims Against Selling Firms. Investors who purchased the CDOs through other brokerage firms will undoubtedly begin filing claims against those firms. While claims against selling firms are different than direct claims against the firm that created the security, as the SEC’s case progresses, information regarding those claims will become available. Recent decisions against brokerage firms who sold private placements that were later determined to be fraudulent may bolster these cases. Investors suing a selling BD will be able to rely on the arbitration agreement with their brokerage firm, or the FINRA rules requiring firms to arbitrate with their customers.

5. Other CDO Claims. This event will lead to investigations against other firms who packaged CDOs. There presently is a similar case, by a private litigant, pending against Merrill Lynch, and we can expect to see these claims expand to other CDOs and other firms.