Ponzi Scheme Series: Ponzi Scheme Victims Were Awarded Relief from the Ponzi Operator’s Prime Broker

On June 24, 2010, a Financial Industry Regulatory Authority (FINRA) arbitration panel ordered Goldman Sachs to pay $20.58 million to creditors of the Bayou Group, a hedge fund that was charged with operating a Ponzi scheme, to settle claims that the bank helped the fund perpetrate a Ponzi scheme.  Bayou’s creditors filed a complaint against Goldman in July 2008, asserting claims for fraud, failure to investigate fraud, and fraudulent transfers.  The complaint alleged, among other things, that Goldman had access to Bayou’s trading records, which showed losses, as well as its marketing materials, which showed profits.

Goldman, like other vendors to financial firms that have been exposed as Ponzi scheme operators, argued that it had no duty to monitor the “honesty and the finances” of its account holders.

The arbitration panel did not provide an opinion explaining the reason for granting the award.

Call Jeffrey Wittenberg at 877-352-2010 if you have questions about this matter or securities fraud in general.