Goldman Sachs 2012 Annual Report Download - page 202

Notes to Consolidated Financial Statements
Note 27.
Legal Proceedings
The firm is involved in a number of judicial, regulatory and
arbitration proceedings (including those described below)
concerning matters arising in connection with the conduct
of the firm’s businesses. Many of these proceedings are in
early stages, and many of these cases seek an indeterminate
amount of damages.
Under ASC 450, an event is “reasonably possible” if “the
chance of the future event or events occurring is more than
remote but less than likely” and an event is “remote” if “the
chance of the future event or events occurring is slight.”
Thus, references to the upper end of the range of reasonably
possible loss for cases in which the firm is able to estimate a
range of reasonably possible loss mean the upper end of the
range of loss for cases for which the firm believes the risk of
loss is more than slight. The amounts reserved against such
matters are not significant as compared to the upper end of
the range of reasonably possible loss.
With respect to proceedings described below for which
management has been able to estimate a range of
reasonably possible loss where (i) plaintiffs have claimed an
amount of money damages, (ii) the firm is being sued by
purchasers in an underwriting and is not being indemnified
by a party that the firm believes will pay any judgment, or
(iii) the purchasers are demanding that the firm repurchase
securities, management has estimated the upper end of the
range of reasonably possible loss as being equal to (a) in the
case of (i), the amount of money damages claimed, (b) in the
case of (ii), the amount of securities that the firm sold in the
underwritings and (c) in the case of (iii), the price that
purchasers paid for the securities less the estimated value, if
any, as of December 2012 of the relevant securities, in each
of cases (i), (ii) and (iii), taking into account any factors
believed to be relevant to the particular proceeding or
proceedings of that type. As of the date hereof, the firm has
estimated the upper end of the range of reasonably possible
aggregate loss for such proceedings and for any other
proceedings described below where management has been
able to estimate a range of reasonably possible aggregate
loss to be approximately $3.5 billion.
Management is generally unable to estimate a range of
reasonably possible loss for proceedings other than those
included in the estimate above, including where (i) plaintiffs
have not claimed an amount of money damages, unless
management can otherwise determine an appropriate
amount, (ii) the proceedings are in early stages, (iii) there is
uncertainty as to the likelihood of a class being certified or
the ultimate size of the class, (iv) there is uncertainty as to
the outcome of pending appeals or motions, (v) there are
significant factual issues to be resolved, and/or (vi) there are
novel legal issues presented. However, for these cases,
management does not believe, based on currently available
information, that the outcomes of such proceedings will
have a material adverse effect on the firm’s financial
condition, though the outcomes could be material to the
firm’s operating results for any particular period,
depending, in part, upon the operating results for
such period.
IPO Process Matters. Group Inc. and GS&Co. are among
the numerous financial services companies that have been
named as defendants in a variety of lawsuits alleging
improprieties in the process by which those companies
participated in the underwriting of public offerings.
GS&Co. has been named as a defendant in an action
commenced on May 15, 2002 in New York Supreme
Court, New York County, by an official committee of
unsecured creditors on behalf of eToys, Inc., alleging that
the firm intentionally underpriced eToys, Inc.’s initial
public offering. The action seeks, among other things,
unspecified compensatory damages resulting from the
alleged lower amount of offering proceeds. On appeal from
rulings on GS&Co.’s motion to dismiss, the New York
Court of Appeals dismissed claims for breach of contract,
professional malpractice and unjust enrichment, but
permitted claims for breach of fiduciary duty and fraud to
continue. On remand, the lower court granted GS&Co.’s
motion for summary judgment and, on December 8, 2011,
the appellate court affirmed the lower court’s decision. On
September 6, 2012, the New York Court of Appeals
granted the creditors’ motion for leave to appeal.
Group Inc. and certain of its affiliates have, together with
various underwriters in certain offerings, received
subpoenas and requests for documents and information
from various governmental agencies and self-regulatory
organizations in connection with investigations relating to
the public offering process. Goldman Sachs has cooperated
with these investigations.
200 Goldman Sachs 2012 Annual Report