Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Tuesday, January 4, 2011

New Jersey Federal District Court Rejects Madoff Investor's Claim Against Goldman

In a recent opinion marked not for publication, the federal district court in New Jersey dismissed without prejudice a retired investor's claims against Goldman Sachs for failing to warn him to decrease or divest investments in Bernie Madoff's ponzi scheme.  Goodman v. Goldman Sachs & Co., Civ. No. 10-1247 (FLW) (Dec. 14, 2010).  According to the complaint, the plaintiff had invested the bulk of his retirement funds with The Ayco Company, a company he retained as his financial advisor.  Acting upon Ayco's advice, plaintiff ultimately invested $15 million, or 87% of his assets, with Madoff.  Meanwhile Goldman Sachs purchased Ayco and advised plaintiff that Goldman would work "in tandem" with Ayco to provide financial advisory services.  (The court states in a note that Ayco was not named as a defendant presumably because of an arbitration clause in their agreement that called for application of New York law.)  The gist of plaintiff's complaint is that he would have divested himself from the Madoff fund if Goldman had warned him of the dangers of over-concentration in a single investment.  Applying New Jersey law, however, the court finds that plaintiff failed to state a claim, in large part because he does not allege sufficient facts to support allegations of a fiduciary relationship between the plaintiff and Goldman.  The court noted that plaintiff specifically alleges only one meeting with Goldman representatives at which Goldman presented an investment strategy that plaintiff did not follow and that plaintiff never signed a retainer agreement with Goldman.  "In light of Plaintiff's failure to allege that Goldman Sachs maintained discretion over his investments, his breach of fiduciary duty claim fails to state a claim under New Jersey law."

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