Goldman Sachs Wasting Shareholder Money On Huge Bonuses, Fiduciary Duty 'Wholly Abdicated,' According To Two New Lawsuits

Two new lawsuits accuse Goldman Sachs, now the most profitable securities firm in Wall Street history, of wasting shareholder money by paying out huge bonuses to its employees.

Both suits pose an intriguing question: considering the billions in government assistance offered to the financial sector, are the bank's hugely lucrative bonuses actually good for shareholders? Or, better yet, are they truly reflective of performance?

The lawsuits, both filed in Manhattan's New York State Supreme Court, were brought by Illinois' Central Laborers' Pension Fund and Illinois shareholder Ken Brown. Each suit alleges that the bank's much-criticized compensation plan is not structured in the best interest of shareholders. Recently, the Security Police and Fire Professionals of America Retirement Fund filed a similar suit against the company.

The individual defendants, including Goldman Sachs CEO Lloyd Blankfein, COO Gary Cohn and CFO David Viniar, "wholly abdicated their fiduciary duty to ensure a compensation package that did not harm shareholders," according to Brown's lawsuit. At least two recent studies, as we pointed out last month, have suggested that higher CEO pay may actually damage long-term shareholder value.

At issue in both lawsuits is whether or not Goldman Sachs's bonuses -- including those from 2008 and the bonuses it plans to pay out in 2009 -- are artificially inflated by the government's assistance. The bank, which says it has set aside a record $16.7 billion for employee compensation thus far this year, is expected to announce its 2009 bonuses on January 18.

Citing New York Attorney General Andrew Cuomo's July report, Brown's lawsuit states that "Goldman earned $2.3 billion, paid out $4.8 billion in bonuses and received $10 billion in TARP funding." The lawsuit argues that the bank's 2008 bonuses were subsidized with taxpayer money.

Here's more from Brown's lawsuit (hat tip to Courthouse News):

"However, Goldman Sachs's compensation is not based on the net income the company would have earned but for the sale of overvalued CDOs, the TARP bail out and other programs put in place by the U.S. government. In fact, Goldman Sachs has recently admitted to the office of The Special Inspector of the Troubled Asset Relief Program that the company would have sustained billions of losses had AIG not been bailed out."

The changes Goldman Sachs has since made to its compensation plan, Brown's lawsuit argues, are minor.

READ Brown's lawsuit:

GoldmanSachs -

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Comments

[Motnitram]

04:41 AM on 02/03/2010

Revolution, anybody?

[Rebecca Goldstein]

05:51 PM on 01/12/2010

Let's just hope that they use their bonuses for good causes to balance out the sketchiness. Goldman matches donations up to $20k.... http://bit.ly/5ldqiW

[cirrus7]

08:26 AM on 01/12/2010

AG: How much money did Goldman Sachs pay in taxes in 2008?

MT: They paid $14 million in taxes last year, which is an effective tax rate of about one percent, which means that they paid in taxes about a third of what CEO Lloyd Blankfein actually made in compensation last year. And that sounds like an amazing number. And if you—their excuse for why that is is because they had changes in their so-called geographic earnings mix, which basically means that they moved all their revenues to foreign countries, where the tax rates were lower. And so, Goldman, which was, again, the beneficiary of massive subsidies during the bailouts, you know, paid really just a pittance in taxes last year.
(Democracy Now July17, 2009)

[my whitehouse]

02:15 PM on 01/11/2010

i'd be nice if these stories would move the market
hat tip to http://iamned-website.blogspot.com

[zbig]

01:17 PM on 01/11/2010

Bravo, Brown! I hope he wins the lawsuit.

[DiogenesOfAlaska]

11:13 AM on 01/11/2010

GS should use the $16 bn to buy back all shares and turn back into a partnership.

Tomorrow. Or maybe the day after tomorrow. But certainly before Jan 18th.

[DiogenesOfAlaska]

02:51 PM on 01/11/2010

Let's be a bit more precise:

GS should provide a calculation (the trial in the above lawsuit might be a nice occasion for that purpose) in which the pros and cons of the conversion back to partnership vs remaining a bank holding company with special rights for risk taking.

I don't see how they owe any LESS to the taxpayer, let alone their shareholders.

Why? Because what else would the famous living will of the too-big-to-fail financial firm GS consist of?

Do they plan to go out of business in a stress scenario? Do they plan to beg for government help? Do they plan forced debt-to-equity conversions?

No? Then what? Returning to a different ownership structure must be it. So go about and do it. Write it down. We are all looking forward to read it - just like the next best romance novel... that's how much fun it must be to read it.

[NeoconGal]

11:39 PM on 01/09/2010

I hope this goes all the way to the Supreme Court so the bankers can tell the judges what to do.

[spinns17]

02:17 PM on 01/10/2010

they bought them along time ago

[SimonD]

08:21 PM on 01/09/2010

about time. i was wondering if shareholders were asleep.
better yet, sell your GS shares all you fund managers.

[knowhelpnow]

11:31 AM on 01/09/2010

May they win all their law suits, maybe we can stop this corrupt system. Good luck your going to need it, if it goes to the Supreme Court which is packed with Corporate loving judges that do not use common sense when it is so needed.
The law used to mean justice now it has nothing to do with justice, it is no wonder the people are up almost in arms. If this goes on I believe that we will have a revolution in our own country. Things are falling apart people don't have jobs and they can't take care of their families and they are looking at a continuation of the same in the future. When the unemployment runs out and our social services can't keep up, what do you think is going to happen? I think a whole lot of civil unrest. Our founding fathers told us that we just may have to take back our government, that it will be our duty to do this. I hope we can do it in a civil way but right now Congress isn't changing anything and if it blows up again who knows what will happen.

[hellboundtrain]

11:12 AM on 01/09/2010

I like the Charles Russell painting, "To the Victor Belong the Spoils," where grizzly bear has killed a yearling elk or deer and is about to eat it, and off in the distance is two hungry wolves that have to wait to see if there is anything left for them to eat when that grizzly is finished.

But, the title made me think that Wall Street doesn't have many victors, but a more savvy and astute manipulator. The title to todays painting: "To the Savvy Manipulators Belong the Piles of Fiat."

Masterful market manipulators Rule!

[Mauimom]

10:04 AM on 01/09/2010

Y'know if our TAX LAWS were structured such that income above, oh, say $3 million were taxed at 80% or 90%, we taxpayers would be getting back some of that dough we poured into Goldman and the other places.

Taxes used to be higher at the upper end, before Reagan and Bush decided that these deserving souls "needed a break."

There's NO reason not to return to a more progressive income tax structure [taxing those at the top more, those in the middle and at the bottom less]. Such a move would solve MANY problems.

[knowhelpnow]

11:14 AM on 01/09/2010

Yes and begin to pay off the money we borrowed for these preempted wars that are going on. The Constitution does not say that we should rule the world or even involve ourselves in others domestic problems. 9/11 was used as another reason to build up the Corporate/Military Industrial Complex. We are spending more then half of our taxes on defence with over 900 military bases and we couldn't even stop 4 hijacked a/c in our boundaries. These people do not hate us for what we have they hate us for interfering in their countries business and the bombs we drop on their innocent people killing men/women and children that have nothing to do with terrorist. We may get a few terrorist but to them we have ruined their countries. I'm sorry if this sounds unamerican but we have to stop this slaughter. Bush started this one but Obama is carring it right on and this isn't the first we have been keeping this huge military since WW11 and it keeps getting bigger while our country is going down the tubes domestically.

[hellboundtrain]

06:29 AM on 01/09/2010

A new German supercomputer estimates that there are an estimated 500 billion galaxies in the universe!
And, as of June , 2009 the value of OTC derivatives is $609 trillion, and another source as stated that now the value is $1.25 quadrillion! This is incredible news! The fellas on Wall Street have created more derivative-based vapor fiat than god made galaxies, and if they keep going there will be more of those special dollars than even stars in the entire universe!

[andycan]

01:47 AM on 01/09/2010

Blankfein should be at least thrown out, and someone who also has the public's welfare in view should be named Goldman CEO.

[fatnugly]

12:43 PM on 01/09/2010

Yeah doing what's right for the public is in the shareholders best interest.

[max hp]

12:06 AM on 01/09/2010

Sir, we have been sold out on Health Care Reform.

Are we facing the same sell out on Financial Reform?
......................................................................................................................................................................................
BILL MOYERS: Write the first email he would send, if you were Obama. What would you send those millions of young people and others who are looking for real change in the elections of 2008. What would you say?

KEVIN DRUM: If it were my email, I would say, "Look, we need to break up the big banks." Look, Alan Greenspan of all people, has said if a bank is too big to fail, it's too big. Allen Greenspan said that. If Alan Greenspan thinks that we ought to break up big banks, if Paul Volcker thinks we ought to break up big banks, this is not a fringe, left view. This is this ought to be a mainstream view. And yet, it's nowhere. That kind of thing should--

DAVID CORN: I'll give you the, I'll give you the first line. The first line should be, "We've been taken for a ride. You know what happened in 2008. I came into office promising change. I've sent some bills up there. They were strong. Maybe they could have been stronger. And I see that they're being weakened. This only makes me believe that we have to bear down harder. And I can only do this with your help."
......................................................................................................................................................................................
Watch it online or read the transcripts:

http://www.pbs.org/moyers/journal/01082010/watch.html

[PhilipTaylor]

11:12 PM on 01/08/2010

G0LDMAN BONUSES = $23BN in Holiday Bonuses

Equals 279 years of pay for all US Senators and House Members.

Equals 6,500 years of pay to the US President.
_____________________________________

If Geithner had NOT come up with “100 cents on the dollar” and $13 Billion A1G pass-through and Bernanke/FDIC with $51 BILLION MORE then G0LDMAN would have been BANKRUPT!

G0LDMAN’S #1 Innovation is leaving their ETH1CS, SCRUPLES, and M0RALS at HOME everyday while they steal from our Economy!

Christopher Whalen said, "Mr. B1ankfein .., in my view, has done more to damage the reputations of global financial professionals than any other organization in 2009..”

[PhilipTaylor]

11:14 PM on 01/08/2010

Wall Street Paid from $150 Billion to $200 Billion in BONUSES this Season:

Equals MORE than the DEBT of all 50 States in the UNION = $142 Billion!