Goldman Loses Appeal on $20M FINRA Clearing Case

The firm also said that $6.7 million that was transferred from outside accounts to Bayou funds from June 2004 to June 2005 was not an initial transferee, and therefore not recoverable from Goldman Sachs. It further argued that $13.9 million that was transferred from one Bayou fund to four new Bayou funds in March of 2003 was not a conveyance, because it represented one fund.

However, the court did not agree. In its decision, it said in part, “The manifest disregard standard is, by design, exceedingly difficult to satisfy, and Goldman has not satisfied it in this case.”

SIFMA, which had filed documents in the case in October of 2011, said in those filings that a ruling against Goldman Sachs would have a far-reaching impact on clearing brokers.

“By implicitly characterizing a clearing broker as an ‘initial transferee’ under the Bankruptcy Code, places substantial economic and quasi regulatory burdens on all clearing brokers, burdens which the SEC and industry regulations as well as the courts have specifically rejected,” SIFMA said. Pointing out that under SEC regulations, broker-dealers are forbidden to have “dominion and control” over customer monies in their possession, it added that if BDs were tasked with additional responsibilities in investigating customer funds, they would be hindered in the quick clearing and execution of transactions.