Goldman Sachs 2012 Annual Report Download - page 212

Notes to Consolidated Financial Statements
Financial Advisory Services. Group Inc. and certain of its
affiliates are parties to various civil litigation and
arbitration proceedings and other disputes with clients and
third parties relating to the firm’s financial advisory
activities. These claims generally seek, among other things,
compensatory damages and, in some cases, punitive
damages, and in certain cases allege that the firm did not
appropriately disclose or deal with conflicts of interest. In
addition, Group Inc. and its affiliates are subject from time
to time to investigations and reviews by various
governmental and regulatory bodies and self-regulatory
organizations in connection with conflicts of interest.
Goldman Sachs is cooperating with all such investigations
and reviews.
Group Inc., GS&Co. and The Goldman, Sachs & Co.
L.L.C. are defendants in an action brought by the founders
and former majority shareholders of Dragon Systems, Inc.
(Dragon) on November 18, 2008, alleging that the
plaintiffs incurred losses due to GS&Co.’s financial
advisory services provided in connection with the plaintiffs’
exchange of their purported $300 million interest in
Dragon for stock of Lernout & Hauspie Speech Products,
N.V. (L&H) in 2000. L&H filed for Chapter 11
bankruptcy in the U.S. Bankruptcy Court in Wilmington,
Delaware on November 29, 2000. The action is pending in
the United States District Court for the District of
Massachusetts. The complaint, which was amended in
November 2011 following the 2009 dismissal of certain of
the plaintiffs’ initial claims, seeks unspecified
compensatory, punitive and other damages, and alleges
breach of fiduciary duty, violation of Massachusetts unfair
trade practices laws, negligence, negligent and intentional
misrepresentation, gross negligence, willful misconduct and
bad faith. Former minority shareholders of Dragon have
brought a similar action against GS&Co. with respect to
their purported $49 million interest in Dragon, and this
action has been consolidated with the action described
above. All parties moved for summary judgment. By an
order dated October 31, 2012, the court granted summary
judgment with respect to certain counterclaims and an
indemnification claim brought by the Goldman Sachs
defendants against one of the shareholders, but denied
summary judgment with respect to all other claims. On
January 23, 2013, a jury found in favor of the Goldman
Sachs defendants on the plaintiffs’ claims for negligence,
negligent and intentional misrepresentation, gross
negligence, and breach of fiduciary duty. The plaintiffs’
claims for violation of Massachusetts unfair trade practices
laws will be addressed by the district court and have not yet
been decided.
Sales, Trading and Clearance Practices. Group Inc. and
certain of its affiliates are subject to a number of
investigations and reviews, certain of which are industry-
wide, by various governmental and regulatory bodies and
self-regulatory organizations relating to the sales, trading
and clearance of corporate and government securities and
other financial products, including compliance with the
SEC’s short sale rule, algorithmic and quantitative trading,
futures trading, transaction reporting, securities lending
practices, trading and clearance of credit derivative
instruments, commodities trading, private placement
practices and compliance with the U.S. Foreign Corrupt
Practices Act.
The European Commission announced in April 2011 that it
was initiating proceedings to investigate further numerous
financial services companies, including Group Inc., in
connection with the supply of data related to credit default
swaps and in connection with profit sharing and fee
arrangements for clearing of credit default swaps, including
potential anti-competitive practices. The proceedings in
connection with the supply of data related to credit default
swaps are ongoing. Group Inc.’s current understanding is
that the proceedings related to profit sharing and fee
arrangements for clearing of credit default swaps have been
suspended indefinitely. The firm has received civil
investigative demands from the U.S. Department of Justice
(DOJ) for information on similar matters. Goldman Sachs
is cooperating with the investigations and reviews.
Insider Trading Investigations. From time to time, the
firm and its employees are the subject of or otherwise
involved in regulatory investigations relating to insider
trading, the potential misuse of material nonpublic
information and the effectiveness of the firm’s insider
trading controls and information barriers. It is the firm’s
practice to cooperate fully with any such investigations.
210 Goldman Sachs 2012 Annual Report