From comp.risks: even lawyers need to know math while doing God's work...
Date: Wed, 01 Jun 2011 08:41:08 +0100 From: Martyn Thomas <martyn@thomas-associates.co.uk> Subject: Another role for provers? The complexity of an esoteric Hong Kong financial instrument has come back to haunt Goldman Sachs after an simple typographical slip threatened to cost it HK$350m (27m UK pounds). The error appeared in the small print of a phone book-sized prospectus accompanying the issue in February of four so-called "exchange-traded warrants" which offered exposure to Japan's Nikkei index of leading shares. In a formula to calculate the value of the warrants a multiplication symbol appeared where their should have been a division. The potentially costly error appeared in the bank's paperwork despite it having been scrutinised and approved by the Hong Kong stock exchange. Such warrants are hugely popular in Hong Kong, with 14,400 similar products said to have been issued last year by large investment banks. It was not until the end of March -- almost seven weeks after the warrants had been issued -- that a lawyer from Goldman reported the mistake to the stock exchange. For almost two hours the price of warrants began to soar until trading was suspended at the bank's request. Goldman has offered to buy back warrants at a 10% premium, an offer accepted by 75% of holders. However, a hard core of large investors believe they are contractually entitled to considerably more. One told the Economist magazine the bank's offer was worth HK$10m, whereas a strict application of the formula suggested the warrants could be worth $350m. http://www.guardian.co.uk/business/2011/may/31/goldman-sachs-libya-investmen... (final paragraphs).