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Goldman Sachs Faces Lawsuit by 2 Leading Brokerage Firms

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A lawsuit is filed against The Goldman Sachs Group (GS - Free Report) by two brokerage firms — The Charles Schwab Corporation (SCHW - Free Report) and TD Ameritrade Holding Corporation (AMTD - Free Report) — over a 17-year old stock-sharing agreement, per an article by Reuters.

Goldman is charged of violating the deal that was made in 2001 over the acquisition of Epoch Partners from its founders Schwab, TD Waterhouse and Ameritrade. Per the deal, Goldman had agreed to keep giving Schwab and TD some IPO and secondary public offering shares.

However, Goldman is arguing that the contract expired in 2007 and that it had the right to end it after having complied with it for more than a “reasonable term”.

Through this agreement, clients of TD and Schwab were able to buy newly listed companies at the same time as Goldman's ultra-wealthy clients — an opportunity which TD Ameritrade’s spokeswoman Becky Niiya said to be "increasingly rare."

Reuters reported that Goldman spokesman Michael DuVally in an emailed statement said, "In filing this lawsuit, plaintiffs are seeking to preserve a windfall entitlement they have enjoyed for over a decade under the theory that 'reasonable' means perpetual.”

Recently, Goldman was in news for mulling over spin-off of Simon — its online platform for retail bond investors — while retaining a minority stake. The app, which was rolled out three years back, is currently valued at about $100 million. Some major Wall Street banks such as Wells Fargo (WFC - Free Report) and JPMorgan have put forth bids for stake. (Read more: Is Goldman Sachs Mulling the Spin-Off of Fintech App Simon?)

Goldman continues to make efforts to tap new growth opportunities through several strategic investments, including the digital consumer lending platform, which will likely support its overall business growth. However, pending litigation issues remain a concern for the company.

Shares of Goldman have lost 6.8% so far this year compared with 3.3% decline witnessed by the industry it belongs to.

The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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