In a time of increased scrutiny on brokerages, Goldman, Sachs & Co. has been added as a defendant in lawsuits related to questionable accounting practices by mortgage giant Fannie Mae.
Complaints allege that Goldman, Sachs & Co. violated U.S. securities laws while allegedly arranging Fannie Mae-sponsored bond deals, the brokerage said in its quarterly report with the Securities and Exchange Commission (SEC). The deals relate to real estate mortgage investment conduits, which are bonds collateralized with mortgage-backed securities, MarketWatch reported.
The other defendants include Fannie Mae, some of its former and present officers and directors, accountants and other financial-services firms. Goldman Sachs said the amended complaints were filed in August and September in a purported class action and another shareholder derivative action pending in the U.S. District Court for the District of Columbia.
Fannie Mae shareholders allege the company produced misleading information about its finances. The Securities and Exchange Commission and the Office of Federal Housing Enterprise Oversight (OFHEO) fined Fannie Mae $400 million for accounting fraud, with senior management accused of manipulating accounting to spark big bonuses. Some current or former executives may be required to return past bonuses, under an order from OFHEO.
Corporate scandals in the U.S. have led to heightened interest in the firms that do business with them. In a column in Express Computer, a weekly IT Business newspaper, Keshav Prakash, Serena Software’s Country Manager for India, said financial services firms in India should become more sophisticated. IT governance must improve, he wrote.
“As India’s ties with the global economy strengthen, players have to pay close attention to other countries’ rules and regulations that affect their business. For example, business scandals in the US (Enron, WorldCom, Adelphia, Tyco and dozens of other companies) have led to intensified scrutiny of banks, brokerages and accounting firms involved with such customers.”
And in China, the country’s Securities Regulatory Commission has stopped approving new brokerages to give regulators time to revitalize the industry, which has been hurt by complaints of insider trading and other abuses.