PRNewswire – The founders of Marvell Technology Group, Dr. Sehat Sutardja and Ms. Weili Dai, are preparing to amend their claim filed with the San Francisco office of the Financial Industry Regulatory Authority (FINRA) against Goldman Sachs GS -0.18% and two account executives, alleging Goldman Sachs defrauded the two Silicon Valley executives of several hundreds of millions of dollars in the midst of the 2008 financial crisis.
At that time, Dr. Sutardja and Ms. Dai were two of the largest victims of fraud by Goldman’s Private Wealth Management Group. Today’s breaking news reveals there will be an amended FINRA Claim based on new evidence that Goldman Sachs engaged in secret re-titling into Goldman’s name alone of over 20 million shares owned by two founders of Marvell, Dr. Sutardja and Ms. Dai. In a series of transactions eerily similar to MF Global, currently under Congressional investigation for misusing client funds, the amended FINRA Claim will allege Goldman Sachs secretly instructed the stock transfer agent to obtain title to the Marvell shares only in Goldman Sachs’ name, without their clients’ permission.
Recent information revealed Goldman Sachs re-titled over 20 million shares of its clients’ Marvell stock so that, as will be asserted in the amended FINRA Claim, Goldman could trade on its own account, create a market for its affiliated hedge funds and, ultimately, recapitalize its accounts to be used to help save the Firm from financial ruin at the height of the 2008 financial crisis. In the midst of a financial crisis, the FINRA Claim contends Goldman put its own interests ahead of its clients’ interests.
A linchpin of Dr. Sutardja and Ms. Dai’s FINRA Claim is the allegation Goldman unlawfully re-titled into Goldman’s name alone over 20 million Marvell shares owned by Dr. Sutardja and Ms. Dai without client knowledge or authorization. Newly discovered hard evidence establishes this claim. It is questionable whether, under federal regulations, a brokerage firm is permitted to cause a client’s shares to be placed in the brokerage firm’s name absent the express consent of the client. It was not until April 2011 that Dr. Sutardja and Ms. Dai discovered Goldman’s re-titling. Thus, Goldman Sachs had over 20 million shares in its name alone from January 2008 to April 2011, even though the shares were actually owned by its clients.
“The best circumstantial evidence supporting our clients’ FINRA Claim is the amount of money Goldman Sachs made in proprietary trading during the time frame 2008-2011,” said attorney Joseph Cotchett, of Cotchett, Pitre & McCarthy, LLP, one of the attorneys representing Marvell’s co-founders.
In January, 2008, under the guise of a margin account, Goldman undertook steps to re-title in its own name “GOLDMAN, SACHS & CO” over 20,000,000 Marvell shares then held by Dr. Sutardja and Ms. Dai. Goldman had represented all re-registered shares would indicate on the face of the stock certificate “GOLDMAN, SACHS & CO. FOR BENEFIT OF SEHAT SUTARDJA” or, in the alternative, “GOLDMAN, SACHS & CO. FOR BENEFIT OF WEILI DAI.”
Clear instructions were transmitted to the American Stock Transfer & Trust Company of Brooklyn, New York to indicate “GOLDMAN, SACHS & CO. FOR BENEFIT OF SEHAT SUTARDJA” or, in the alternative, “GOLDMAN, SACHS & CO. FOR BENEFIT OF WEILI DAI” on the face of the stock certificate. At the specific request of Goldman Sachs, these instructions were not followed.
As recently confirmed by an email from the American Stock Transfer & Trust Company, “The requests (to re-title the shares) came in from Goldman Sachs, and … by their instruction letter, it was requested that we place (the shares) in the name of Goldman Sachs.”
Thus, the American Stock Transfer & Trust Company confirmed that, instead of re-registering Dr. Sutardja and Ms. Dai’s Marvell shares into Goldman’s name for the benefit of Dr. Sutardja or Ms. Dai, Goldman re-titled over 20 million of Claimant’s Marvell shares into Goldman’s name alone. Indeed, on the transfer assignment control forms Goldman filed with the Depository Trust Company, Goldman indicated Dr. Sutardja and Ms. Dai’s shares were “TO BE REGISTERED IN THE NAME OF GOLDMAN SACHS & CO” alone.
The significance of Goldman’s re-registering shares then worth over $120 million dollars goes to Goldman’s motives behind the unlawful transfers. Under federal securities laws regulating short sales, before a short sale can be made, the shares must be borrowed. Often hedge funds pay brokerage firms such as Goldman Sachs to loan shares to the fund. By re-titling Claimants’ shares into Goldman’s name alone, Goldman created liquidity, i.e., it could trade, lend, and put up as collateral Claimants’ Marvell shares for Goldman’s own account, without Claimants’ consent, i.e. proprietary trading.
The FINRA Claim contends Goldman Sachs used the 2008 financial crisis to take advantage of Sehat Sutardja and Weili Dai. The FINRA filing asserts that in the wake of the 2008 financial crisis, Goldman Sachs was under great stress – incurring its first quarterly loss in its history ($2.1 billion, 4th quarter 2008) and losing two-thirds of its stock value in less than four months.
According to attorney Joseph Cotchett, “Through a series of extraordinary and deceitful acts geared to save Goldman Sachs at the expense of its clients, the FINRA Claim expressly alleges the firm used customer accounts to leverage its own profits without regard to the consequences to Sehat and Weili. Our clients became the victims of one of the largest acts of corporate greed and avarice in the history of our financial markets.”
As United States Attorney for the Southern District of New York, Preet Bharara, working with the Federal Bureau of Investigation and the Securities and Exchange Commission to bring down insider trading rings, recently explained in a statement:
“The charges unsealed today allege a corrupt circle of friends who formed a criminal club whose purpose was profit and whose members regularly bartered lucrative inside information so their respective funds could illegally profit, ” Bharara explained in a statement Wednesday afternoon.
“And profit they allegedly did – to the tune of more than $61m on illegal trades of a single stock – much of it coming in a $53 million short trade,” he said. “Here, The Big Short was The Big Illegal Short. We have demonstrated through our prosecutions that insider trading is rampant and has its own social network, a network we intend to dismantle. We will be unrelenting in our pursuit of those who think they are above the law.” Excerpts quoted in The Register.
These insider trading schemes, including the ring allegedly involving Daniel Longueuil, Samir Barai, Jason Pflaum, and Noah Freeman, include obtaining inside information, such as detailed financial earnings. Among the prominent public companies victimized by the insider trading rings are Marvell and NVIDIA Corporation (“NVIDIA”).
As SEC Chairman Mary Schapiro commented recently in connection with curbing conflicts of interest for firms such as Goldman Sachs through implementing the Volcker Rule, “[T]he Volcker Rule… generally prohibits certain banking entities from engaging in proprietary trading or sponsoring or investing in a hedge fund or private equity fund. The statute is intended to curb the proprietary interests of commercial banks and their affiliates in order to protect taxpayers and consumers by prohibiting insured depository institutions from engaging in risky proprietary trading.” Chairman Schapiro went on to state that implementation of the Volcker Rule “would be a step forward in reducing conflicts of interests between the self-interests of banking entities and the interests of their customers. The statute is aimed at constraining banking entities’ proprietary trading, protecting the provision of essential financial services and promoting the stability of the U.S. financial system.”
The Volcker Rule, which has become one of the most controversial parts of the 2010 Dodd-Frank financial oversight law, seeks to add distance between the world of speculative trading and commercial banking. The proposal bans banks from proprietary trading, or trades that are made solely for their own profit, and limits their investments in hedge funds. It would mostly affect large banks, such as Goldman Sachs. See Thomson Reuters News and Insight.
Further, by re-titling Claimants’ Marvell shares in Goldman’s name alone, Goldman was able to de-leverage and capitalize its own accounts. Goldman needed this liquidity in the midst of the financial crisis to convert from an investment bank to a bank holding company, which it did in September, 2008.
Goldman is not the only firm alleged to be guilty of betraying its clients’ interests, breaching its fiduciary duty of loyalty, and breaking the law. Threatened with bankruptcy, MF Global is alleged to have used client accounts in a last ditch effort to recapitalize the firm. According to Bloomberg News, MF Global CEO and former Co-Chairman of Goldman Sachs Jon Corzine “gave ‘direct instructions’ to transfer $200 million from a customer fund account to meet an overdraft in brokerage account with JP Morgan Chase & Co. (JPM).” The New York Times added, “[i]n its final days, MF Global tapped its customers’ accounts to meet its own financial obligations, people briefed on the matter have said. The act violated a fundamental Wall Street regulation that firms never commingle customer money with company funds.”
A House Financial Services subcommittee is investigating what caused an estimated $1.6 billion shortfall in customer funds at MF Global, which collapsed into bankruptcy on October 31, 2011. The Congressional subcommittee is focusing on instructions to move $200 million from an MF Global Holdings Ltd. account containing customer funds just three days before the collapse of the securities firm. The transfer was allegedly needed to cure a $175 million overdraft in an MF Global bank account.
Just as MF Global purportedly misappropriated client accounts, the FINRA Claim asserts Goldman Sachs misappropriated Dr. Sutardja and Ms. Dai’s stock. Goldman Sachs has recently been the subject of numerous claims of misuse of client funds and shares in connection with securities lending. As one New York Times article pointed out,
“While few investors understand or care about the mechanics of securities lending, the area has come under increased regulatory scrutiny. The Securities and Exchange Commission has brought several cases in recent years accusing market participants of failing to borrow shares they or their customers had sold short, improperly creating a supply of additional stock to sell.
Along with a handful of traders at smallish firms, Goldman’s securities lending unit has been cited by regulators for lapses. In 2010, the S.E.C. sued Goldman on accusations that it ‘willfully’ had failed to preborrow shares as required for its short-selling clients in January 2009…. The improprieties involved 385 short sales in which the firm had not located shares for its brokerage clients to borrow. Goldman paid $450,000 to settle the case without admitting or denying the accusations.”
Recently, a former Goldman Sachs Executive Director, Greg Smith, resigned from the firm and wrote a scathing Op-Ed article in The New York Times. In his Op-Ed article, Mr. Smith contended the Goldman Sachs culture had become toxic and the firm had placed its own interests ahead of those of its customers.
The FINRA Claim of Dr. Sutardja and Ms. Dai has become a large concern in the Asian-American community.
In conclusion, the amended FINRA Claim will allege Goldman Sachs secretly took title in only its name to over 20 million of Dr. Sutardja and Ms. Dai’s Marvell shares, worth over $120 million at the time and over $315 million today. Based on today’s breaking news, Dr. Sehat Sutardja and Ms. Weili Dai will be amending their FINRA Claim to allege Goldman Sachs secretly instructed the stock transfer agent to obtain title to the Marvell shares in Goldman Sachs’ name alone, without their clients’ permission. It is asserted this undisclosed re-titling resulted in Dr. Sutardja and Ms. Dai becoming two of the largest victims of the culture of greed at Goldman Sachs. This use of client shares is similar to the alleged use of client funds by MF Global, currently under Congressional investigation for misusing client funds. The FINRA Claim seeks return of several hundreds of millions of dollars and punitive damages.
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