Where to begin. . .
/ 17.May, 2012
The website Overstock.com has been engaged in battle
with a number of Wall Street entities. Among the most contentious of these battles has been Overstock.com v. Goldman Sachs. The contention in the action is that Goldman Sachs was involved in “naked short selling” of Overstock.com’s stock, leading to a decline in the stock price. Goldman Sachs denied the allegations. Allegations of Goldman Sachs involvement in “naked short selling” has been around for some time, and they have previously paid fines due to the practice
, albeit while not admitting they engaged in the practice. However, the Overstock.com law suit was unsuccessful due to a jurisdictional issue
After the lawsuit ended, Overstock.com, along with several news organizations, sought to have a number of documents in the case made public, and Goldman Sachs resisted. This is where the potential professional liability issue began. Morgan Lewis, the attorneys, for Goldman Sachs, filed an opposition to an Overstock.com motion to unseal certain documents. Attached to the motion
was an unredacted copy
(see pages 14-22) of a previous motion by Overstock.com which contained quotes from the very documents Overstock.com was seeking to have made public. The quotes from the e-mails paint an unflattering picture of Goldman Sachs’ opinions of rules and regulations, and appear to confirm that it was actually engaged in naked short selling
. One of the more interesting exchanges
came after a Merrill executive expressed concern that a colleague “intentionally failed” a short sale, an executive at the clearing unit responded, telling the executive to “F— the compliance area — procedures, schmecedures” (the executive apparently told the court that this was a joke).
There is probably no actual damages attached to any error by Morgan Lewis, as the judge had previously ruled
that at least some of the discovery would be unsealed, but had held it pending appeal. However, the embarrassment is significant
Perhaps the easiest/most important lesson for professionals to take from this comes not from any mistake or potential legal malpractice by the lawyers, but the mistakes of the bankers. Naturally, attempting to skirt around regulations is always a problem. Also important, in this age of electronic discovery, one should take care not to put anything in an e-mail that you would not want to see blown-up as an exhibit at trial.
–Josh J.T. Byrne, Esquire