Goldman Sachs 2012 Annual Report Download - page 214

Notes to Consolidated Financial Statements
Beginning in February 2012, GS&Co. was named as
respondent in four FINRA arbitrations filed, respectively,
by the cities of Houston, Texas and Reno, Nevada, a
California school district and a North Carolina municipal
power authority, based on GS&Co.’s role as underwriter
and broker-dealer of the claimants’ issuances of an
aggregate of over $1.8 billion of auction rate securities from
2003 through 2007 (in the Houston arbitration, two other
financial services firms were named as respondents, and in
the North Carolina arbitration, one other financial services
firm was named). Each claimant alleges that GS&Co. failed
to disclose that it had a practice of placing cover bids on
auctions, and failed to offer the claimant the option of a
formulaic maximum rate (rather than a fixed maximum
rate), and that, as a result, the claimant was forced to
engage in a series of expensive refinancing and conversion
transactions after the failure of the auction market (at an
estimated cost, in the case of Houston, of approximately
$90 million). Houston and Reno also allege that GS&Co.
advised them to enter into interest rate swaps in connection
with their auction rate securities issuances, causing them to
incur additional losses (including, in the case of Reno, a
swap termination obligation of over $8 million). The
claimants assert claims for breach of fiduciary duty,
fraudulent concealment, negligent misrepresentation,
breach of contract, violations of the Exchange Act and state
securities laws, and breach of duties under the rules of the
Municipal Securities Rulemaking Board and the NASD,
and seek unspecified damages. GS&Co. has moved in
federal court to enjoin the Reno and California school
district arbitrations pursuant to an exclusive forum
selection clause in the transaction documents. On
November 26, 2012, this motion was denied with regard
to the Reno arbitration and, on February 8, 2013, this
motion was granted with regard to the California school
district arbitration.
Financial Crisis-Related Matters. Group Inc. and certain
of its affiliates are subject to a number of investigations and
reviews by various governmental and regulatory bodies and
self-regulatory organizations and litigation relating to the
2008 financial crisis. Goldman Sachs is cooperating with
the investigations and reviews.
212 Goldman Sachs 2012 Annual Report