US pension funds sue Goldman over Abacus

SEC charges prompt funds to take action.

Two US pension funds are sueing Goldman Sachs – with other funds threatening to follow – claiming negligence over billions of dollars of paper losses at the bank, after its share price tanked following the recently announced SEC investigation into the controversial Abacus deal.

Septa, the $640m Pennsylvania transportation fund, and the International Brotherhood of Electrical Workers Local 98 Pension Fund, said they had amended an existing lawsuit against Goldman regarding executive pay to include the new charges.

They filed their amended complaint on April 28, according to a new Goldman 8-K filing.

Goldman lost 12% of its market value on the day the fraud charges become known and its share price has since slipped further. In the complaint, the shareholders argue that this was a result of board negligence: “[The board] utterly failed to monitor its operations, allowing the firm to manage and conduct the Firm’s trading segment in a grossly unethical manner, subjecting Goldman to potential civil liability and severe reputational harm.”
The complaint also claims that Goldman is: “engaging inincreasingly risky practices in the name of profit and paying big bonuses to their employees, all at the expense of its shareholders, its clients, and the public taxpayers”.

Separately, the $1.5bn Louisiana Municipal Police Employees Retirement System (MPERS) has also threatened legal action. It wants Goldman’s board to “investigate, discipline, and file suit for breach of fiduciary duty” internal staff involved in the Abacus deal. In a letter dated April 23, MPERS said that if doesn’t get the action it demands it will initiate “shareholder derivative claims” seeking appropriate compensation. It also wants an investigation into whether the Abacus-style practices extended into other transactions at the bank.

Goldman is also facing suits from five individual shareholders.

The bank, which says the SEC charges are completely unfounded, said in the new filing that it anticipates “additional putative shareholder derivative actions” relating to its CDO activity.