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Goldman Sachs faces investigation over auction of securities

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(Bloomberg) — Goldman Sachs Group Inc. added the offering and auction of securities, as well as “when-issued trading,” to a list of activities that regulators and other government bodies are investigating.

The bank made the disclosure Tuesday in a quarterly regulatory filing, without specifying which agencies or regulators are probing the items on the list. The U.S. Justice Department has begun looking at possible collusion in the $12.7 trillion U.S. Treasury market after securing guilty pleas and more than $5 billion in fines from global banks in a similar investigation of currency rigging, Bloomberg reported earlier this year.

Goldman Sachs is one of 22 financial firms accused in a July investor lawsuit of colluding to manipulate auctions of U.S. Treasuries. A pension fund for Boston public employees alleged that the so-called primary dealers used electronic chat rooms and instant messages to inflate the prices of Treasuries they sold to investors and to deflate the prices they paid for those Treasuries at auction.

Michael DuVally, a Goldman Sachs spokesman, declined to comment beyond the filing.

Goldman Sachs decreased its estimate for reasonably possible legal costs in excess of reserves by 10 percent to $5.3 billion as the New York-based firm added $416 million to its legal reserves in the third quarter, according to Tuesday’s filing. The estimate, which banks have been providing since Securities and Exchange Commission guidance on the matter in 2010, gives investors an idea of potential legal losses beyond reserves.

Legal Reserves

Goldman Sachs has added $2.1 billion to its legal reserves this year, almost as much as it set aside in the past three years combined. The costs dragged down the bank’s return on equity to 8.8 percent in the first nine months of this year, from 11 percent in the same period of 2014.

Goldman Sachs has held talks with the U.S. Justice Department over a $2 billion to $3 billion settlement of a probe into its sales of mortgage bonds leading up to the financial crisis, a person with direct knowledge of the situation said in June. In the second quarter, the firm added costs that could arise from that probe to the possible losses estimate, contributing to a 55 percent jump from $3.8 billion at the end of March.

In August, Goldman Sachs agreed to pay $272 million to settle a lawsuit from investors in residential mortgage-backed securities and was one of five banks that agreed to settle U.S. investor suits over allegations of rigging the foreign-exchange market. The firm will also pay about $164 million in an accord to resolve accusations that a dozen big banks conspired to limit competition in the credit-default swaps market, according to people briefed on terms of the deal.

The July Treasury auctions case is State-Boston Retirement System v. Bank of Nova Scotia, New York Agency, 15-CV-05794, U.S. District Court, Southern District of New York (Manhattan).


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