A former Goldman Sachs Group Inc. (GS:US) trader who helped lead the firm’s bets against subprime mortgages before the financial crisis asked a court to throw out an arbitration ruling denying him more than $20 million in unpaid compensation.
Deeb Salem encountered a “kangaroo court” and a “shocking and blatant miscarriage of justice” as Financial Industry Regulatory Authority arbitrators didn’t allow him to call some of Goldman Sachs’s top trading executives as witnesses, he said in a complaint today in New York State Supreme Court. Salem, 35, said in the complaint that members of the industry-funded regulator’s arbitration panel called his case “ridiculous” and “bulls---” during a hearing.
Salem left the firm in May 2012, a year after a U.S. Senate subcommittee said he and other Goldman Sachs traders tried to manipulate prices of derivatives linked to subprime home loans in 2007 for their own benefit. The subcommittee’s assertions were based in part on Salem’s discussion of an attempted short squeeze in his self-evaluation, a finding which Salem said “put too much emphasis on ‘words,’” according to the Senate report.
The three-person Finra arbitration panel said in a March 17 decision to dismiss his case that even if the witnesses said what Salem maintained they would, he hadn’t established a legally enforceable claim for the bonus money.
“Employees trade their rights to go litigate in court and get smart judges to review their circumstance in exchange for an expedited hearing on the merits,” Jonathan Sack, Salem’s lawyer, said in a telephone interview. “Deeb Salem got neither.”
Sack said his client was “used as a scapegoat” by Goldman Sachs after criticism of the firm. Salem left the bank on his own accord and started at New York-based hedge-fund firm GoldenTree Asset Management LP a few months later.
His arbitration claim seeks $6.15 million in deferred compensation, $10 million in “bonus true-up” for 2010 and 2011, and $5 million as a pro-rata bonus for his 2012 work.
Martin Zern, chairman of the arbitration panel, didn’t return a phone message left at a listed number. Tiffany Galvin, a spokeswoman for New York-based Goldman Sachs, said the firm wouldn’t comment on litigation and Finra’s Michelle Ong declined to comment.
Company documents show Goldman Sachs traders in 2007 sought to encourage a “short squeeze” by putting artificially low prices on derivatives that would gain in value as mortgage securities fell, according to a 2011 report by the Permanent Subcommittee on Investigations. The idea, abandoned after market conditions worsened, was to drive holders of such credit-default swaps to sell and help Goldman Sachs traders buy at reduced prices, according to the report.
“We began to encourage this squeeze, with plans of getting very short again,” Salem said in a 2007 self-evaluation excerpted in the report. In interviews with the committee, Salem denied attempting a short squeeze and “claimed that he had wrongly worded his self-evaluation,” the report said.
The case is Salem v. Goldman Sachs & Co., 651811/2014, New York State Supreme Court, New York County (Manhattan).
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