Bank Liable For Ponzi Scheme Losses

We woke up this weekend to a report that a bank – in this instance, Goldman Sachs – has, for the first time, been held liable for losses suffered in a Ponzi scheme. An arbitrator has ruled that Goldman, which was a lender to the Bayou Group, a hedge fund operated by Samuel Israel III that operated a $250 million fraud, must pay more than $20 million to Bayou’s creditors. 

The complaint contended that employees of Goldman Sachs had “repeatedly claimed that they had no obligation to concern themselves with what had occurred at the Bayou Hedge Fund at anytime.”  Apparently, they were wrong.
 
One of our posts on Bayou is available at http://www.financialfraudlaw.com/content/feeder-funds-get-boost-second-circuit-decision.
 
The weekend story, by Louise Story and Gretchen Morgenson of the Times, is at http://www.nytimes.com/2010/06/26/business/26bayou.html?dbk=&pagewanted=print.