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United States District Court Southern District of New York Case 1:19-cv-01562-VSB Document 35 Filed 07/12/19 Page 1 of 135 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK FULTON COUNTY EMPLOYEES’ RETIREMENT Case No.: 1:19-cv-1562 (VSB) SYSTEM, Derivatively on Behalf of THE GOLDMAN SACHS GROUP, INC., JURY TRIAL DEMANDED Plaintiff, v. LLOYD BLANKFEIN, DAVID M. SOLOMON, M. MICHELE BURNS, MARK A. FLAHERTY, WILLIAM W. GEORGE, JAMES A. JOHNSON, ELLEN J. KULLMAN, LAKSHMI N. MITTAL, ADEBAYO O. OGUNLESI, PETER OPPENHEIMER, DAVID A. VINIAR, and MARK O. WINKELMAN, Defendants, and THE GOLDMAN SACHS GROUP, INC., Nominal Defendant. VERIFIED AMENDED SHAREHOLDER DERIVATIVE COMPLAINT Case 1:19-cv-01562-VSB Document 35 Filed 07/12/19 Page 2 of 135 TABLE OF CONTENTS I. NATURE OF THE ACTION...........................................................................................1 II. INTRODUCTION ...........................................................................................................2 III. JURISDICTION AND VENUE.......................................................................................9 IV. PARTIES ........................................................................................................................9 A. Plaintiff ................................................................................................................9 B. Nominal Defendant ..............................................................................................9 C. The Individual Defendants ................................................................................. 10 V. THE 1MDB SCANDAL ................................................................................................ 13 A. Background of Goldman and the Creation of the Business Standards Committee ......................................................................................................... 13 B. Defendant Blankfein Lays the Groundwork for Goldman’s 1MDB Deals ........... 20 C. “What the F**k is Going on With This?”: Goldman’s Nonfunctioning Internal Controls Fail to Heed a Series of Blatant Red Flags in Connection with the First 1MDB Bond Offering ................................................................... 26 D. Goldman’s Internal Controls Again Fail to Stop Illegal Activity and Detect Low’s Involvement in Project Maximus ............................................................. 35 E. Goldman’s Internal Controls Fail to Stop Illegal Activity for the Third Time in Less Than a Year in 1MDB’s Third and Largest Bond Offering ..................... 40 F. Defendants Fail to Act Despite Being Presented with Actual Evidence of Goldman’s Broken Internal Controls .................................................................. 47 1. The Federal Reserve’s Scrutiny Should Have Prompted an Immediate Investigation by the Board ...................................................................... 47 2. Despite Actual Knowledge of Goldman’s Deficient Internal Controls and Federal Reserve Scrutiny, Blankfein Meets with Low for a Third Time as Goldman Continues to do Business with Him ............................ 49 3. Murders and Arrests Arising From the 1MDB Fallout Should Have Alerted Defendants to the Corruption at the Heart of 1MDB ................... 50 ii Case 1:19-cv-01562-VSB Document 35 Filed 07/12/19 Page 3 of 135 G. The Massive Fallout From the 1MDB Scandal was Swift and Severe ................. 52 1. Defendants’ Failure to Ensure that Goldman Had Effective Internal Controls and Compliance Functions Has Spawned Multiple Criminal, Civil, and Regulatory Actions ................................................................. 52 2. Goldman’s “Rogue Banker” Defense is Widely Ridiculed as Not Credible .................................................................................................. 61 3. Defendants’ Misconduct Has Exposed Goldman to Widespread Condemnation and Billions of Dollars of Damages ................................. 67 H. The Emerging Truth About Goldman’s Role in the 1MDB Causes a Massive Decline in Goldman’s Stock Price ...................................................................... 71 VI. THE DEFENDANTS VIOLATED SECTION 10(b) OF THE EXCHANGE ACT AND BREACHED THEIR FIDUCIARY DUTIES BY KNOWINGLY OR RECKLESSLY ISSUING MATERIALLY FALSE AND MISLEADING STATEMENTS DURING THE RELEVANT PERIOD ................................................ 72 A. Defendants Caused Goldman Sachs to Conduct a Massive Stock Repurchase Program ............................................................................................................. 72 B. In Connection with the Share Repurchases, Defendants Issued Materially False and Misleading Statements ........................................................................ 75 1. False and Misleading Statements Regarding Goldman’s Financial Results.................................................................................................... 75 2. False Statements Regarding Goldman’s Risk Exposure and Risk Management ........................................................................................... 77 3. False Statements Regarding Goldman’s Internal Controls ....................... 80 C. In Repurchasing Stock, Goldman Relied on Defendants’ False and Misleading Statements ....................................................................................... 83 D. Neither the Statutory “Safe Harbor” Nor the “Bespeaks Caution” Doctrines Apply to Defendants’ Misrepresentations ........................................................... 85 E. Defendants’ Misstatements and Omissions Damaged Goldman .......................... 85 F. Defendants Blankfein, Solomon, and Viniar Unlawfully Profited at Goldman’s Expense by Selling Shares While in Possession of Non-Public Information ....... 86 iii Case 1:19-cv-01562-VSB Document 35 Filed 07/12/19 Page 4 of 135 VII. THE DEFENDANTS VIOLATED SECTION 14(a) OF THE EXCHANGE ACT AND SEC RULE 14a-9, AND BREACHED THEIR FIDUCIARY DUTIES BY CAUSING THE COMPANY TO FILE MATERIALLY MISLEADING PROXY STATEMENTS ............................................................................................................. 90 A. Defendants Caused Goldman to Issue Materially False and Misleading Statements in the 2016 Proxy ............................................................................. 91 B. Defendants Caused Goldman to Issue Materially False and Misleading Statements in the 2017 Proxy ............................................................................. 95 C. Defendants Caused Goldman to Issue Materially False and Misleading Statements in the 2018 Proxy ............................................................................. 99 VIII. ADDITIONAL DAMAGES TO GOLDMAN ............................................................. 103 IX. DEFENDANTS WERE OBLIGATED TO SAFEGUARD THE COMPANY’S INTERESTS ................................................................................................................ 104 A. The Duties of All Defendants ........................................................................... 104 B. The Board and its Committees Were Expressly Charged with Overseeing and Monitoring Goldman’s Compliance Function and Risk Exposure .............. 106 X. DERIVATIVE AND DEMAND FUTILITY ALLEGATIONS .................................... 112 A. Demand is Excused Because the Defendants’ Conduct Did Not Constitute a Valid Exercise of Business Judgment ............................................................... 113 B. Demand is Excused Because the Director Defendants Face a Substantial Likelihood of Liability ..................................................................................... 115 C. Demand is Futile Because the Directors are Financially Beholden to Goldman .......................................................................................................... 117 XI. CLAIMS AGAINST DEFENDANTS ......................................................................... 120 XII. PRAYER FOR RELIEF .............................................................................................. 129 XIII. JURY DEMAND ........................................................................................................ 130 iv Case 1:19-cv-01562-VSB Document 35 Filed 07/12/19 Page 5 of 135 I. NATURE OF THE ACTION 1. Plaintiff Fulton County Employees’ Retirement System (“Fulton County” or “Plaintiff”), a shareholder of The Goldman Sachs Group, Inc. (“Goldman” or the “Company”), brings this shareholder derivative action on behalf of Goldman against the Company’s current and former officers and directors identified below (collectively, “Defendants”), arising from Defendants’ breaches of fiduciary duties and violations of state and federal law from at least January 1, 2012 through the present (the “Relevant Period”).1 In 2012 and 2013, Goldman raised $6.5 billion in three bond offerings for a Malaysian sovereign wealth fund that was nothing more than a fraudulent sham through which Malaysia’s corrupt former prime minister and his associates looted the vast majority of the investment proceeds—a historic scandal that The Wall Street Journal called “one of the largest financial frauds in history.” Goldman arranged these offerings despite myriad prominent red flags that were utterly disregarded by the senior-most officers and directors of the Company. After the scheme was revealed, the fallout was profound: two senior Goldman executives have been indicted or entered guilty pleas to date, and the Company faces numerous international investigations
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