WASHINGTON (AFP) – US investment giant Goldman Sachs has been ordered to pay 20.6 million dollars to the creditors of the collapsed hedge fund Bayou Group for ignoring signs of fraud, according to the arbitration panel's decision revealed Saturday.
The financial regulator FINRA approved the claimant's assertion that Goldman Sachs allowed the trades made by Bayou before it collapsed in 2005, and allowed "fraud, failure to investigate the fraud, and fraudulent transfers," said the ruling issued Thursday.
Bayou CEO Samuel Israel at the time of fund's collapse is currently serving a 20-year prison sentence after admitting to misleading investors over the value of Bayou's funds, defrauding the clients out of over 400 million dollars.
It is the largest ever arbitration award levied against Goldman Sachs, the Wall Street Journal said.
"Through either gross negligence or a willful choice to ignore the signs of fraud, (Goldman) failed to diligently investigate the red flags it was made aware of, to contact Bayou's auditors... or to alert the appropriate authorities," said lawyers for the creditors' committee, the Journal reported.