Goldman Sachs JBWere Capital Markets (Goldman Sachs) in Australia is under investigation by a law firm over options contracts that allegedly caused clients to lose about $15 million.
Slater & Gordon (S&G) yesterday said it is investigating allegations of misleading and deceptive conduct and breaches of legal duties against Goldman Sachs over so-called “buy below the market” option contracts sold to clients in 2007.
S&G clients have already claimed losses of about $15 million against the company, and attempts to resolve the claim of one S&G client has so far been unsuccessful, the law firm said.
Goldman Sachs clients claimed they were sold the contracts as a protection against a sudden downturn in the stock market, S&G practice group leader Van Moulis said.
However, when the credit crisis roiled markets, clients were locked into buying shares of blue-chip companies at prices “well above” their market value, he said.
“Our clients claim the product was sold to them as an appropriate hedge against downside risk in the equity market,” Moulis said.
“However, our clients allege Goldman Sachs failed to explain that if the market moved against them they would be required to buy the shares at above the market or settle the difference in cash.
“On the basis of our investigation, it appears the marketing of the product was misleading and it seems the product was inadequate to protect our clients against the market collapse.”
The “buy below the market” contracts were developed in house by Goldman Sachs and marketed as “American call options”.
“In reality it was a rolling futures contract, not an option,” S&G said.
The contracts, which were marketed across the Goldman Sachs client base, are no longer being offered, S&G said.
The investigation is being supported by litigation funder Litigation Lending Services.
