Financial regulators ordered a broker dealer unit of Goldman Sachs to pay $20.5 million in a case involving the now-defunct and fraudulent Bayou hedge fund, Reuters reported.

A Financial Industry Regulatory Authority dispute resolution document said creditors claimed Goldman Sachs Execution and Clearing failed to investigate the fraud and fraudulent transfers of money in what was a Ponzi scheme that unravelled in 2005.

The fraud, in which early investors were paid with the money of new clients, was run by Bayou fund founder Samuel Israel, who is serving a 20-year prison sentence after pleading guilty in 2005 to bilking investors of $450 million.

The saga highlights how the financial services industry – including wealth management – has been hit by a number of scandals that came to light before, during and after the market turmoil. The biggest-ever Ponzi scheme fraud was that of Bernard Madoff, who ran a scam totalling $65 billion, hitting ultra high net worth investors among others. Such frauds have added to concerns that wealth managers must devote more time and resources to due diligence checks on fund managers.

In the Bayou case, the award of compensatory damages of $20.5 million came following arbitration during which the Wall Street firm denied the allegations, according to the FINRA document as cited by the news service.

Lawyers representing about 200 creditors brought the case against the unit in 2008 under US bankruptcy laws.