LevonP
11-08-2008, 01:03 PM
NEW YORK -(Dow Jones)- Goldman Sachs Group Inc. (GS) will pay $100.5 million to former policyholders of defunct insurance company General American Life Insurance in a settlement.
The agreement was finalized in Jefferson City, Mo., on Thursday, an attorney representing the policyholders said.
The suit had been filed in the 22nd Judicial Circuit state court in St. Louisagainst Goldman and Morgan Stanley (MS), which were hired by General American for financial advice in an effort to go public 10 years ago. It alleged that the two banks did not give proper advice to the struggling insurance firm. The banks advised General American to go public in January 1999 and the company went bankrupt in August of that year.
A clerk at the St. Louis court confirmed that both parties had notified the court after reaching a settlement.
"It's unfortunate that it's taken so many years to bring these cases to a resolution," said Paul E. Kovacs of St. Louis law firm Armstrong Teasdale LLP, who represented the holders, along with Richard Lombardo of Shaffer Lombardo Shurin. "We feel good that we have been able to bring back some of the value lost by policyholders in 1999."
The money will be issued to a liquidator hired by the state of Missouri, who will then distribute it to former policyholders of the firm.
Formerly based in St. Louis, General American ran into trouble in 1999 after it issued $6.8 billion of "short-term funding agreements," which are similar to both bonds and guaranteed investment contracts.
Money-market fund managers bought them since they paid higher rates than most short-term investments and could be redeemed with only seven days' notice, explained Paul E. Kovac, who represented the General American policyholders.
But then Moody's Investors Service downgraded its rating on General American on concerns over the eroding market value of some of the company's long-term investments, inspiring "a run on the bank," Kovacs said.
General American, caught in a liquidity crunch, agreed to be sold to MetLife Inc. (MET) for $1.2 billion several weeks later.
A spokesperson from Goldman Sachs said the company does not comment on litigation and regulatory matters.
The agreement was finalized in Jefferson City, Mo., on Thursday, an attorney representing the policyholders said.
The suit had been filed in the 22nd Judicial Circuit state court in St. Louisagainst Goldman and Morgan Stanley (MS), which were hired by General American for financial advice in an effort to go public 10 years ago. It alleged that the two banks did not give proper advice to the struggling insurance firm. The banks advised General American to go public in January 1999 and the company went bankrupt in August of that year.
A clerk at the St. Louis court confirmed that both parties had notified the court after reaching a settlement.
"It's unfortunate that it's taken so many years to bring these cases to a resolution," said Paul E. Kovacs of St. Louis law firm Armstrong Teasdale LLP, who represented the holders, along with Richard Lombardo of Shaffer Lombardo Shurin. "We feel good that we have been able to bring back some of the value lost by policyholders in 1999."
The money will be issued to a liquidator hired by the state of Missouri, who will then distribute it to former policyholders of the firm.
Formerly based in St. Louis, General American ran into trouble in 1999 after it issued $6.8 billion of "short-term funding agreements," which are similar to both bonds and guaranteed investment contracts.
Money-market fund managers bought them since they paid higher rates than most short-term investments and could be redeemed with only seven days' notice, explained Paul E. Kovac, who represented the General American policyholders.
But then Moody's Investors Service downgraded its rating on General American on concerns over the eroding market value of some of the company's long-term investments, inspiring "a run on the bank," Kovacs said.
General American, caught in a liquidity crunch, agreed to be sold to MetLife Inc. (MET) for $1.2 billion several weeks later.
A spokesperson from Goldman Sachs said the company does not comment on litigation and regulatory matters.