Two Silicon Valley entrepreneurs suing Goldman Sachs say the Wall Street firm mislabeled shares in the couple's brokerage account in order to be able to assist short-sellers who were betting against the company the couple founded.
A lawyer for the couple, Sehat Sutardja and Weili Dai, co-founders and executives of the semiconductor company Marvell Technologies (MRVL), said the claim will be added Tuesday to a suit the couple filed in a San Francisco court against Goldman a year ago. Sutardja is the CEO of Marvell. Dai is the company's manager of communications.
The suit claims that Goldman cost the married couple $100 million by duping them into selling a portion of their Marvell shares to cover a margin loan at the height of the financial crisis. The case is set to go to arbitration. "Goldman had no legal right to lend out shares that didn't belong to the firm," says Phil Gregory of Cotchett, Pitre & McCarthy, who is representing Sutardja and Dai. "This whole case is about Goldman trying to make Goldman look better, and my clients suffering for it."
In the amendment, the couple allege that in January 2008 Goldman (GS) removed Sutardja and Dai from the ownership records of 20 million shares of Marvell stock the couple held in a Goldman brokerage account. The couple say they agreed to allow Goldman to add the firm's name to the stock ownership records, but that the shares were supposed to classified as held for the benefit of either Sutardja or Dai. Instead, the couple says their names were removed completely.
At the time, interest from investors wanting to bet against Marvell's stock was soaring. The number of Marvell shares borrowed by short-sellers more than doubled from 16 million in mid-September 2007 to nearly 37 million by the end of January. The couple allege that by putting their shares in Goldman's name, the firm was able to lend those shares to short-sellers, allowing them to increase their bets against Marvell. Goldman also collected fees from the hedge funds and other investors who borrowed the shares. Short-sellers are restricted from betting against stocks in which they have not secured the rights to borrow the shares. Sutardja and Dai say they would have objected to lending out their shares to investors who were betting against their company's stock. The couple say they do not know how many shares Goldman lent to short-sellers, or if the firm did at all. Sutardja and Dai have reclaimed the shares, which were never sold from their account.
A Goldman spokeswoman declined to comment on whether the firm had lent the couple's Marvell shares to short-sellers. "Goldman Sachs has consistently denied and continues to fight Dr. Sutardja and Ms. Dai's claims, which are currently in arbitration with FINRA," says a Goldman spokeswoman. "We have not seen any new claims."
Goldman has recently come under increasing fire for allegations about the way the firm treats its clients. In early March, a recently departed Goldman executive Greg Smith wrote in a New York Times op-ed that the firm's culture had become toxic and that its employees regularly put the firm's interests ahead of clients. He didn't offer specific examples. Goldman denies the claims. Sutardja and Dai are not the only ones to complain about Goldman's securities lending operations. On Monday, the New York Times reported that a former hedge fund manager turned chicken farmer believes Goldman's mishandling of his trades by the firm's securities lending division caused his once successful $1.5 billion fund to collapse.
