Goldman EToys Settlement Approved; Judge Won't Seal Terms

Goldman Sachs Group Inc., this year’s biggest underwriter of U.S. equity offerings, received court approval of a $7.5 million settlement with creditors of defunct EToys Inc., according to an attorney for the creditors.

U.S. Bankruptcy Judge Mary Walrath in Wilmington, Delaware, today also denied a request to seal terms of the accord, which ends more than a decade of litigation, Julia B. Klein, a lawyer for the creditors, confirmed in an e-mail. The creditors claimed the bank botched the online toy retailer’s initial public offering by pricing the shares too low.

Goldman, based in New York, denied any wrongdoing or liability and settled to “avoid further expense and distraction,” according to court documents. The settlement was reported earlier by Reuters.

Both sides sought to keep the terms undisclosed, claiming they contained “confidential and sensitive” material. The U.S. Trustee, an arm of the Justice Department that monitors bankruptcy cases, argued that the terms should be made public.

The shares were offered in May 1999 for $20 and more than tripled on the first day of trading, closing at $76.56. By November, the stock began a steady decline, trading for less than 2 cents before the company sought bankruptcy protection in March 2001.

Failed Funding

EToys filed in Wilmington listing $285 million in debt, after it failed to get new fundings. The company was never profitable. In 2008, the EToys brand was again in bankruptcy as part of the Chapter 11 filing of the Parent Co., a Denver-based online retailer of children’s products.

In the 2001 bankruptcy, EToy’s committee of unsecured creditors got the right to pursue lawsuits and sued Goldman in May 2002 in New York State Supreme Court, according to court papers. The court ruled in Goldman’s favor, prompting appeals. The settlement was reached just before arguments were set to begin in a New York appeals court on May 29.

The case is In re EToys Inc., 01-bk-00706, U.S. Bankruptcy Court, District of Delaware (Wilmington). The New York case is EBC I Inc. v. Goldman Sachs & Co., 601805/2002, Supreme Court of the State of New York, County of New York.

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