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.