Ex-Goldman trader alleges arbitrators pre-judged pay dispute ruling

(Editors:Contains potentially offensive language in paragraphs 1 and 4)

By Suzanne Barlyn

June 13 (Reuters) - A former trader for Goldman Sachs Group Inc who lost a pay dispute against the firm wants a court to overturn the ruling after a recording revealed that an arbitrator described his case as "bullshit," according to court documents.

Deeb Salem, known for his role in shorting the U.S. housing market in the run-up to the financial crisis, alleged in court papers on Friday that Financial Industry Regulatory Authority (FINRA) arbitrators improperly dismissed his case at Goldman's request in March, before he fully presented his evidence and witnesses.

Salem, who worked on Goldman's mortgage trading desk, had been seeking more than $21 million in compensation as well as legal costs and other penalties, according to the FINRA panel ruling.

A conversation among the three arbitrators about Goldman's request shows they had made up their minds before hearing Salem's entire case, according to the court petition. "I don't mean to be crude about it, but as far as I'm concerned, this case is bullshit," said Martin Zern, chairman of the three-person FINRA panel, according to the petition. The remarks, which were inadvertently recorded, appeared in a transcript of the proceedings, according to Salem's lawyer Jonathan Sack in New York.

Zern, reached by telephone on Friday, said he could not discuss the case.

Zern made the remark as the arbitrators discussed the appropriate time to dismiss the case, Salem alleged.

Spokeswomen for Goldman and FINRA declined to comment.

Salem gained some notoriety after the financial crisis because a U.S. Senate panel included his own performance review for 2007. In the review, he detailed what he described as Goldman's plan to put a "short squeeze" on the mortgage market. He also described himself as an expert trader and said he deserved to be promoted to managing director.

In his FINRA claim against Goldman, Salem said he deserved higher bonuses for 2010 and 2011, and a bonus and deferred compensation that he did not receive for 2012. He left the Wall Street bank that year to take a job at Golden Tree Asset Management.

FINRA, Wall Street's industry-funded watchdog, also runs the arbitration forum where investors and licensed brokerage employees must typically resolve their legal disputes against brokerages.

Arbitration rulings are typically binding. However, courts may overturn them in limited circumstances, such as when an arbitrator is biased.

(Reporting by Suzanne Barlyn; Additional reporting by Lauren LaCapra; Editing by Tom Brown)