Already facing a fraud lawsuit by the Securities and Exchange Commission (SEC) related to collateralized debt obligations (CDOs), Goldman Sachs says additional CDO lawsuits over its mortgage-trading activities are likely in the coming months.
“We anticipate that additional putative shareholder derivative actions and other litigation may be filed, and regulatory and other investigations and actions commenced against us with respect to offering of CDOs,” Goldman Sachs said in its 10-Q filing with the SEC on May 10.
The SEC’s lawsuit against Goldman accuses the investment bank and Vice President Fabrice Tourre of misleading investors about a mortgage-linked security and the role the hedge fund, Paulson & Co., played in selecting and then betting against the investment.
Following the SEC’s lawsuit, Goldman Sachs stock fell 22%.
Last month, current and former Goldman Sachs executives, including CEO Lloyd Blankfein and Tourre, faced intense grilling by the Senate’s Permanent Subcommittee on Investigations. Members of the committee subsequently released potentially damaging e-mails that showed various Goldman Sachs employees questioning the securities at the heart of the SEC’s lawsuit and referring to them as “junk.”
Goldman also warned in its 10Q filing that any settlement with the SEC could affect its business operations, including potentially hindering its core broker/dealer activities, as well as its ability to advise mutual funds.