Typo costs Goldman Sachs $45 million
A cautionary reminder about the value of a legitimate editorial review of contracts and other important documents: In February Goldman Sachs (NYSE:GS) issued four warrants tied to Japan's Nikkei index, according to The Economist.The deal was described in separate regulatory filings which collectively ran to several hundred pages of dense type. It was the kind of stuff that most of us would see as mere boilerplate--the type that no one reads.
But buried in the instructions to determine the settlement price was this formula: "(Closing Level - Strike Level) x Index Currency Amount x Exchange Rate".
Goldman Sachs soon caught a mistake, the multiplication sign between the currency amount and the exchange rate should have been a divide sign. A lawyer for the company informed the exchange, and trading was suspended. The securities have been frozen ever since, to the chagrin of holders.
Apparently, Goldman Sachs has a legal "out". It has cited a clause in the prospectus that lets an issuer change terms "of a formal, minor or technical nature, which is made to correct an obvious error". To its credit, the bank has offered to make investors whole. But how much that would cost is at issue. And litigation has ensued. Some think the ultimate costs to the bank could be as much as $45 million. That's one expensive typo. Some lawyer somewhere probably got fired.
- here's the article