Goldman Sachs was not paid a $20 million fee it billed for advising El Paso Corp on its more than $20 billion sale to Kinder Morgan Inc after the investment bank was accused of a conflict of interest in the sale.
The settlement between El Paso shareholders and Kinder Morgan appears to be a rare instance of an investment bank not being paid an advisory fee as a result of litigation.
El Paso shareholders sued Kinder Morgan, alleging that the sale was tainted by Goldman's involvement with both energy companies. While it was advising El Paso, Goldman had a multibillion-dollar stake in the acquirer and its top energy banker held a $340,000 personal stake in Kinder Morgan.
Kinder Morgan announced the $110 million settlement with the shareholders on Friday, saying "El Paso did not pay the $20 million fee or any indemnity payments allegedly owed to Goldman."
The deal closed in May. Delaware Chancery Court Judge Leo Strine refused to block the deal but criticized the negotiating process.
"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," Strine wrote.
In previous rulings, Strine described Goldman Sachs' behavior as "furtive" and "troubling" while simultaneously cautioning that lawyers for the El Paso shareholders who filed the lawsuit may have a difficult time holding Goldman Sachs liable for its actions.
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Goldman Sachs declined to comment on the matter. It has previously said it was transparent with El Paso about its relationship with Kinder Morgan and that it had encouraged its client to seek an independent views from outside advisors.
In March, the investment bank said it was reviewing its procedures and policies for addressing conflicts of interest in light of the controversy.
The $110 million settlement tops the $89.4 million settlement that Del Monte Corp and Barclays Capital agreed to pay to shareholders last year in another high-profile conflict-of-interest case. Del Monte and Barclays shared an equal burden in the settlement.
Like Goldman Sachs, Barclays was accused of playing both sides of a deal by advising Del Monte during the food company's $4 billion takeover while also arranging financing for private equity buyers led by KKR and Co.
Wall Street's banking, trading and wealth-management businesses deal routinely with conflicts, and typically have policies in place to handle them, such as "Chinese walls" that research analysts must get special permission to cross if they need to communicate with bankers or traders.
Despite these efforts, investment banks sometimes find themselves facing questions about whose interest they are best representing.
In recent years, Goldman has become embroiled in conflict-of-interest scandals related to subprime mortgage investments, an investment in Facebook, and its one-time practice of passing analysts' tips to important clients before others.