It's not just class action lawsuits. Goldman Sachs and JP Morgan are being sued. From law360:
Funds Say Goldman, Others Flubbed $157M SunEdison Buy
By Cara Mannion
Law360, New York (November 15, 2016, 6:19 PM EST) -- Banking heavyweights including Goldman Sachs and JPMorgan underwrote a $157 million SunEdison preferred stock purchase without disclosing the renewable energy company’s hefty loan that hinted at its coming free fall into bankruptcy, according to a suit by two investor funds owned by KKR Corp.
SunEdison Inc. raked in $650 million in an August 2015 preferred stock offering despite already being entrenched in an economic downward spiral, Kearney Investors SA and Powell Investors LP alleged in their suit removed to California federal court Monday. But SunEdison’s executives and a slew of big banks misled investors about the now-bankrupt company’s financial outlook by neglecting to disclose its $169 million loan taken out just one week before the stock offering, according to the suit.
“By misleading plaintiffs and other investors about [SunEdison] while earning lucrative underwriting fees, [SunEdison]’s underwriters are every bit as culpable as [SunEdison] and its officers and directors for the over $100 million of losses that plaintiffs suffered on their investments,” the investor funds said.
SunEdison took out the $169 million loan with a 15 percent interest rate from Goldman Sachs & Co. in August 2015. But the company waited three months to disclose the loan, which was a “glaring red flag” for its future financial woes, the investor funds said.
The funds alleged it’s likely SunEdison got the Goldman loan to pay off a $410 million loan issued in January 2015. Some banks that issued the margin call on the earlier loan were the same banks that underwrote Kearney Investors’ and Powell Investors’ August 2015 stock purchases, according to the complaint. Despite being the very banks whose loans allegedly forced SunEdison to take out the extra $169 million, they still failed to disclose the Goldman loan and cashed in on handsome underwriting fees, the funds said.
“These entities suffered conflicts of interest between their interests as lenders that needed [SunEdison] to remain afloat and underwriters charged with the responsibility of ensuring that [SunEdison] accurately presented its financial condition to the public,” the KKR funds said.
The Goldman loan’s extremely high interest rate, sheer size and reason why it was taken out should have tipped off JPMorgan Securities LLC, Goldman Sachs, Deutsche Bank Securities Inc., Bank of America Merrill Lynch, Morgan Stanley & Co. LLC and MacQuarie Capital Inc. to disclose its existence, the funds argued.
The underwriters also failed to catch SunEdison’s liquidity issues, the funds said. The now-bankrupt company frequently assured investors that it had enough cash flow to fund projects needed to reach growth estimates despite its deep liquidity crisis, according to the suit. It was up to these underwriters to alert investors of issues like this as gatekeepers against securities fraud, according to the suit.
KKR declined to comment Tuesday. The investor funds’ counsel on Tuesday declined to comment past public record.
Goldman Sachs, Morgan Stanley, Merrill Lynch and Macquarie Capital all told Law360 Tuesday that they had no comment. SunEdison also declined to comment on behalf of its executives Tuesday.
JPMorgan and Deutsche Bank were not immediately available for comment Tuesday.
Kearney Investors and Powell Investors are represented by David M. Grable, Andrew J. Rossman, Jordan A. Goldstein and Kimberly E. Carson of Quinn Emanuel Urquhart & Sullivan LLP and Frank J. Broccolo and Mark D. Baute of Baute Crochetiere Gilford LLP.
Peter Blackmore is represented by Gregory Peter Boden and Jessica L. Lewis of Wilmer Cutler Pickering Hale & Dorr LLP. Ahmad Chatila, Martin Truong, Emmanuel Hernandez, Antonio Alvarez, Clayton Daley Jr., Georganne Proctor, Steven Tesoriere, Marshall Turner, James Williams, Randy Zwirn and Brian Wuebbels are all represented by Sara B. Brody of Sidley Austin LLP.
The underwriter defendants are represented by Patrick D. Robbins, Jonah P. Ross, Adam S. Hakki and Daniel C. Lewis of Shearman & Sterling LLP.
The case is Kearny Investors S.A.R.L. et al. v. Goldman Sachs & Co. et al., case number 3:16-cv-06582, in the U.S. District Court for the Northern District of California.
--Editing by Bruce Goldman.