In a rare case of an investment bank not being paid advisory fee consequent to litigation, Goldman Sachs was denied a $20 million advisory fee it billed El Paso Corp on its sale to Kinder Morgan. On Friday, Kinder Morgan announced a $110 million settlement with shareholders of El Paso who had sued Kinder Morgan accusing Goldman of being involved with both sides. Kinder Morgan also announced that “El Paso did not pay the $20 million fee or indemnity payments allegedly owed to Goldman.”
Though it is a rare case of being denied fees for advice, Goldman is not new to conflicts of interest related to big deals. Some recent such controversies include the conflicts-of-interests Goldman Sachs had in subprime mortgage investments, Facebook investments, and in its practice of passing analyst’s tips to big clients before others.
For the bench, the path to see mercy for Goldman was strained, as Judge Strine, who was presiding over the matter had in earlier rulings found Goldman’s behavior to be “furtive” and “troubling.” The judge observed, “At this stage, I cannot readily accept the notion that Goldman would not seek to maximize the value of its multibillion-dollar investment in Kinder Morgan at the expense of El Paso, but, at the same time, be so keen on obtaining an investment banking fee in the tens of millions.”
However, the judge also warned the El Paso shareholders who filed the lawsuit that it would be difficult for them to hold Goldman Sachs liable for its actions. El Paso shareholders claimed that the sale of El Paso to Kinder Morgan was tainted by Goldman’s involvement on both sides. For El Paso, Goldman was the adviser in the deal charging fees, and on the other hand Goldman also had a multibillion-dollar stake in Kinder Morgan. Even the top energy banker of Goldman Sachs had a personal stake of $340,000 in Kinder Morgan.