Marvell Founders Sue Goldman Sachs

Hopefully the lawsuit brought against Goldman Sachs by the founders of Marvell will encourage other GS customers to sue the company.

Hopefully the lawsuit brought against Goldman Sachs by the founders of Marvell will encourage other GS customers to sue the company.

Shortly after last week’s revelation by GS executive director Greg Smith that GS calls its customers ‘muppets’ and acts against their interests, it transpires that the co-founders of Marvell have sued GS for defrauding them out of their life savings.

The Marvell co-founders, Sehat Sutardja and Weili Dai gave their savings to the GS Private Wealth Management group. A good chunk of this was in the form of Marvell shares.

The founders’ claim states that, in the Spring of 2008, GS encouraged Dai to buy shares on margin in Nvidia and she bought over $150 million worth.

Meanwhile GS was selling its own holdings of Nvidia shares and, in the period it was encouraging Dai to buy Nvidia, GS reduced its Nvidia share-holding by 60% from 9.2 million shares to 3.8 million shares in one quarter.

In the following quarter, GS issued a margin call for the two Marvell co-founders investment accounts, which were managed by the GS Private Wealth Management Group.

GS told Dai and Sutardja there was an SEC rule called the ‘SEC Five Dollar Rule’ which meant the Marvell -co-founders had to sell the shares bought on margin because the value of Marvell’s stock, against which its margin trading was secured, had dropped below $5 per share.

Apparently there is no such thing as the ‘SEC Five Dollar Rule.’

The margin call forced Dai to sell the Nvidia shares at a massive loss while GS increased its holdings of Nvidia shares by 55%.

GS told the Marvell co-founders that, if they wanted to continue to trade on margin, they needed to transfer 30 million Marvell shares into GS ownership. This was done without the consent of Dai and Sutardja.

Dai and Sutardja only discovered that GS had taken ownership of their shares in April 2011.

In June, 2008, GS analysts put out a note upgrading Nvidia shares from neutral to buy saying “trends in its near-term business are likely to be better than we had expected.” The note boosted Nvidia stock by 35%.

It has been a problem that many rich people don’t like it to be known that they’ve been ripped off by their financial advisers. They think it makes them look silly, or worse, poor. So they don’t sue.

The action brought by the Marvell founders will, hopefully, encourage a horde of disgruntled customers to start lawsuits which will bring this rogue company to its senses.


Comments

14 comments

  1. I’m not entirely convinced, Robert, I’d have thought Goldman Sachs would have got the hang of it by now.

  2. It is not actually that simple to manage any stock portfolio of a significant value. There are Tax optimizations that need to be made and these tax trade executions must be done exactly according to the relevant state and country laws. There are also issues of “insider information” that someone in the industry, such as Marvell founders, might have which influences their decisions. Seen in the wrong light this is insider trading, for which teh SEC will gladly slap you with a big fine or a trip to the big house.
    There are lots of other issues, margin calls for instance, that might result in them needing to sell Marvell stock to meet a MC, yet if they execute the trade themselves they are subject to “no trading” intervals before any significant announcement, such as 10Q’s and 10K’s.

  3. Unfortunately for them the rich get bombarded with offers from companies offering to invest their money for them [Anonymous] the Marvell duo may just have got fed up with all the pestering so chose Goldman Sachs to keep the the others away. But ever since the April 2010 Rolling Stone article about GS, anyone who gives GS their money to invest must be implicitly accepting that GS may take it off them.

  4. They had enough money for the rest of their lives and some…… Why would they risk it? Sheer greed and with their bruised egos’s they need to blame someone but themselves!

  5. I wouldn’t know Lefty, but if it’s anything like our FSA, I expect so. That makes it all the more essential that, if anything is going to get the bankers to behave, it will have to be disgruntled clients suing them, rather than the public authorities slapping their wrists.

  6. But the SEC is already full of muppets isn’t it?

  7. You’re right, John, it’s up to the court to decide.

  8. Certainly GS would have had a fiduciary duty to the Marvell founders. But as to whether “no one could argue that GS did not break that”, I think that’s why we have courts to decide exactly that. It seems that you uncritically believe everything the Marvell founders are saying.

  9. Muppet, muppet on the wall, who’s the darndest of them all?

  10. Well it might, Greg, if enough people sue, or if enough Goldman Sachs customers get together to bring a massive class action lawsuit against GS. I agree it doesn’t look as if the authorities are going to really hurt GS ( although they did slap a $500m fine on them for fraud). So it’s up to the customer base to take them down.

  11. The point is, Fred, that Goldman Sachs did have a fiduciary relationship with the founders of Marvell and no one could argue that GS did not break that trust.

  12. “Hopefully the lawsuit will encourage other GS customers to sue the company”
    You’re kidding, right? So the fact that one disgruntled area in one small area of GS (a group of just one person!) quits, the whole company is guilty? You know that Greg Smith’s clients didn’t have a fiduciary relationship with GS? Do you understand what that means?

  13. The really troubling bit is that the SEC has not been charging individuals like these with criminal activity. There really should be jail time associated with this type of activity. A financial settlement won’t really do the culture any good.

  14. This reminds me a lot of the greed-fuelled events that led to the demise of Arthur Andersen.
    People get to the point of thinking they are above everyone else, cleverer than everyone else, and above the law too, but eventually it ends in tears. The SEC Five Dollar rule is a corker! Oooops.

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