Client Alleges Goldman Sachs Duped Him into an FX Trade

by on January 14, 2014 5:47 am BST

The infamous Goldman Sachs has gotten heat in the past for calling their clients “muppets” in emails, selling overly complicated derivatives to pension funds, and actively trading against client positions (one trader even said Goldman runs the world live on BBC). Now, Peter Oei, a self-made millionaire, alleges Goldman Sachs duped him into a trade that ended-up costing roughly $34 million.

Oei filled a suit against the highly influential investment bank for lying to him, getting him into a losing trade and than scamming him out of millions. Goldman Sachs retaliated by saying the suit was without merit and have the intention of fighting the lawsuit.

According to Oei’s lawyer, Peter McNulty, Oei has been a client previously with Sachs and traded several-hundred million dollars with the firm in the past but broke off the working relationship do to the bank’s wind-up fees he was charged on a losing trade. However, top execs at the firm met up with Oei during a dinner to propose a trade on the currency pair involving the Brazilian real and Japanese yen and reignite the firm-client partnership.

The firm persuaded Oei to long the real over the yen in April of 2013, and Oei said that the bank failed to disclose the full terms or seek confirmation before making the trade while giving him the worst possible price. Oei tried to unwind the position immediately the next day, but there was one problem: Goldman tried to issue an $8 million wind-up charge, the very type of charge that initially broke off their relationship. The dispute carried on for weeks, and by the end $34 million was lost.

Oei contends that Goldman was trading against his position from the beginning, which has been rumored before with GS trader Fabrice Tourre who actively traded against clients during the financial crisis. Tourre was convicted for securities fraud and Sachs paid a settlement without admitting guilt.

Peter Oei admitted that he didn’t know much about the real before getting into trade talks with Goldman, but he was okay with losing the money as long as he was not scammed – which sounds like Goldman phished Oei out.

Now, there are two separate issues regarding this case and potential wrongdoing. Oei, as any other trader, is responsible for conducting due diligence. Essentially, he should know the ins-and-outs of the trade in question. Each party has a story, and we have yet to hear Goldman’s side; but, it sounds like Goldman actively sought out Oei and proposed this specific trade which cost their client $34 million. It sounds sketchy.

In a separate, but somewhat related, case, Goldman advised their clients on December 2 to long Chinese equities and short copper. It was suspected that Goldman’s flow desk to the opposite side of the trade by shorting the HSCWI Index and longing the December 14 copper futures.

Those clients that traded advice given to them by Goldman, probably assuming the firm was taking the trade as well, lost a whopping 13.5 percent a month later.