Amusing Goldman court case

I just stumbled on this gem today... The full complaint, which the article below links to, is highly recommended reading.

Goldman Sachs Group, Inc., Sued By Prominent Singapore Investor For $34 Million Loss Caused By Fraud, Misrepresentation And Misinformation.

Goldman Sachs Group, Inc., the New York City based parent corporation for the global investment banking, securities and investment management firm, has been sued in the Supreme Court of the State of New York, County of New York, by a client related to a $34,000,000 loss allegedly caused by fraud, misrepresentation and misinformation. The client, a prominent Singaporean businessman, Oei Hong Leong, alleges that Goldman Sachs' employees fraudulently induced him to enter into two exotic currency option trades by willfully withholding and recklessly misstating information about the trades. The complaint alleges that as a result, Goldman Sachs reaped millions of dollars in fees and commissions while Mr. Oei lost over $34,000,000.

According to the complaint, Mr. Oei, a customer of Goldman Sachs since 2001, had stopped doing any significant business with Goldman Sachs following a $28,500,000 loss associated with a 2011 trade which Goldman Sachs employees had recommended. In 2012, Gary Cohn, the President and COO of Goldman Sachs, and other high level Goldman Sachs officers travelled to Singapore to meet with Mr. Oei to try to persuade him to resume trading with Goldman Sachs. Goldman Sachs, through Gary Cohn, assured him that he would receive the best possible service and that Cohn would personally make sure that Goldman Sachs and its employees and subsidiaries acted in Oei's best interest.

Shortly after Mr. Oei agreed to resume trading activities with Goldman Sachs, its employees strongly recommended two currency option trades involving the Brazilian Real ("BRL") and Japanese Yen ("JPY"). Mr. Oei alleges that he had no prior experience with the BRL and that he was assured by employees of Goldman Sachs that these trades were both suitable for him and in his best interest. In fact, Goldman Sachs employees repeatedly made specific reckless and knowingly false statements about the BRL by claiming that the BRL was anchored to the U.S. dollar similar to the way that the Hong Kong dollar is pegged to the U.S. dollar and that a BRL/JPY trade would behave very similarly to a U.S. dollar/JPY trade.

According to Mr. Oei, on May 16, 2013, one day after he entered into these two trades, he learned that the two strike prices Goldman Sachs used were not the same and that they were the worst prices of the day. In fact, he later learned that the second strike price was actually the worst of the year. The strike prices had also not been agreed to before the trades and had not been confirmed to him immediately after the trades. There were also no voice logs which is contrary to Hong Kong regulations. Concerned, he instructed Goldman to immediately unwind these trades at cost or better. However, Mr. Oei was not provided with an unwind price until five days later, on May 21, 2013, when he learned, to his shock, that Goldman Sachs wanted $18,000,000 to unwind these two trades which would result in him incurring an $8,000,000 net loss less than a week after entering into the two trades so highly recommended by Goldman Sachs employees despite the market conditions remaining similar.
Believing he was being taken advantage of and that the unwind price quoted by Goldman Sachs was much worse than he could have ever reasonably anticipated, he cancelled the unwind order that same day.

Link: Goldman Sachs Group, Inc., Sued By Prominent Singapore Investor For $34 Million Loss Caused By Fraud, Misrepresentation And Misinformation.

Comments (34)

 
Jan 13, 2014 - 12:52pm

I can't believe I just read that whole thing - it's hilarious if anyone else is considering it.

Array
 
Jan 13, 2014 - 1:35pm

It is incredible that people with such capital as Mr. Oei are trading solely on the recommendation of brokers...

"Every man should lose a battle in his youth, so he does not lose a war when he is old"
 
Jan 13, 2014 - 1:05pm

"Conflict of interests" doesn't even seem to do this fiasco justice.

People demand freedom of speech as a compensation for freedom of thought which they seldom use.
 
Jan 13, 2014 - 1:28pm

Well, clearly they have treated the guy as an institutional client, which, as far as I know, is considered to be a bad thing in many jurisdictions (it seems that even their internal investigation has concluded as much). Indeed, an institutional client would probably have known what the salesguy meant when he was talking about the BRL being "anchored" to USD by the central bank.

The really puzzling thing about this is that it happened after the following sequence of events (alleged):
1) Mr Oei loses money on a rates trade recommended by Goldman.
2) Mr Oei pulls Goldman's line.
3) Gary Cohn and other Goldman big cheeses come to dinner at Mr Oei's house and promise him that they'll treat him nice.
4) Mr Oei comes back to Goldman to punt some nice EMFX basket dual binary reverse window knockout digitals w/a cherry on the top.

I would have thought that, given the history above, the very least that GS FX sales would be doing is treating this particular client VERY VERY gently. Like show him really nice prices on the way in, let him get out at mid if he wants to, etc etc. It appears that they proceeded to do exactly the opposite, which I am extremely puzzled by.

 
Jan 13, 2014 - 1:49pm

cc66:

"If you can't spot the sucker within the first half hour at the table, then you ARE the sucker"

-Rounders


Trade exotics with GS, wait for them to put something in writing that's clearly wrong and that they should know better about, follow their recs, and when the trade goes the wrong way, sue them for the losses and get punitive damages.

GS is the sucker here. It's HQ'd in a place that lets them get dragged into a Manhattan courtroom.

 
Jan 13, 2014 - 2:27pm

I agree that this is poor form on Goldman's part (especially if there is incorrect information regarding the BRL in writing, which isn't clear from the article) and incredibly poor timing. My point is simply that Mr. Oei should not be trading exotic currency option spreads that he admittedly doesn't know the first thing about.

 
Jan 13, 2014 - 1:46pm

What happens to the broker in a case like this where there is a lawsuit based on the trades you recommended?

"I must create a system or be enslaved by another man's." William Blake
 
Jan 13, 2014 - 9:11pm

I really, really hope Goldman loses a lot more than $34 million (which is nothing in the scheme of things). I hope even more that this case is very well publicized It's hard to believe that people still do business with this criminal organization.

 
Jan 13, 2014 - 9:54pm

DickFuld:

I really, really hope Goldman loses a lot more than $34 million (which is nothing in the scheme of things). I hope even more that this case is very well publicized It's hard to believe that people still do business with this criminal organization.


Still kinda with you on that, Mr. Fuld. Though I'm a lot less convinced they are an evil organization than we were on Sept. 12th 2008 (the Friday before Sept. 15th).
 
Jan 13, 2014 - 10:26pm

I'm pretty sure this guy has pulled the same stunt several times with several banks. He's a sophisticated investor who trades exotic options, lost a bunch of cash, and is trying to claw it back.

Jack: They’re all former investment bankers who were laid off from that economic crisis that Nancy Pelosi caused. They have zero real world skills, but God they work hard. -30 Rock
 
Jan 14, 2014 - 9:15am

Revsly:

I'm pretty sure this guy has pulled the same stunt several times with several banks. He's a sophisticated investor who trades exotic options, lost a bunch of cash, and is trying to claw it back.


Precisely... This is the second possible scenario, i.e. Mr Oei is a "serial offender" and has done this to a few banks.

However, in this case, given the guy's history is pretty public, why on earth would Goldman go to all the trouble to get him back on board? Why bring Gary Cohn et al for dinner at his house? Surely, it's not for the sake of the few bucks of bid/offer that the Goldie's EMFX desk made on his BRLJPY punt?

Somebody screwed up big time here and, if I were Gary Cohn, I sure would be itchin' to fire some people.

 
Jan 15, 2014 - 11:23am

Marcus, people in business don't care about how many hookers you screw. They do care if GS is trying to screw their clients. From a practical standpoint, if Mr. Oei isn't married or if his wife is French, GS has far more to lose in all of this than Mr. Oei.

Even if Mr. Oei loses at trial, the Dems on Capitol Hill may very well want another congressional investigation on "shitty deals" and one of their favorite institutions. Do you think Gary Cohn wants to go in front of a congressional committee and answer questions about how GS entertains clients, whether it's supporting sex trafficking, how GS is really any different from any other RICO organization other than the fact that they don't have Italian accents.

If GS is smart, they will unwind the trade and pay Mr. Oei another $10M just to keep his mouth shut. There's really not much they have to threaten Mr. Oei with, and almost anything Mr. Oei is associated with, GS becomes associated with in front of a Senate committee.

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