Goldman Sachs And Greed

Private Eye understands the City, finance and greed. They write about it and rarely if ever get sued. That is because they are right. Goldman have bought the investigators off too often to be innocent. To be fair their alleged victims are grown ups, just as greedy but not as cunning. The Royal Bank of Scotland has been in the business a long time. They should know what they are doing. Notice that Fred the Shred walked away laughing. Only the little people get screwed when all said.

From Private Eye 1261/37

OUR clients' interests come first." So runs the constantly repeated public mantra of Goldman Sachs and its chief executive, Lloyd "God's Work" Blankfein.

Faced with the civil fraud attack by the US Securities and Exchange Commission (SEC), Blankfein reassured "Greedman" staff that "service to our clients" was what mattered. It's a message he's likely to repeat this week when once again giving evidence in Washington - in particular over whether Goldman, in his email words, "made more than we lost" through "shorting" the sub-prime "mortgage mess" the. investment bank did so much to create ($33bn III mortgage-backed securities plus underwriting at least another $53bn of other people's junk between 2005 and 2007).

Traders rule at Goldman, and short-term profits rule traders, not the "long-term greedy" dictum of former senior partner Gus Levy. So behind the traditional blustering, "holier than thou" Goldman posturing, it has long been a bank that puts profits before anything else and was happy to do the bidding of those clients, such as hedge fund manager John Paulson, who promised to most reward its service.

The SEC civil fraud case is that Goldman, which had decided in December 2006 US house prices were too high and two months later that the sub-prime collateralized debt obligation (CDO) market was "dead", did not disclose this to another, far less important client. German bank IKB Deutsche Industriebank or that Paulson had paid it $15m to set up the Abacus 2007-ACI "synthetic" CDO (a derivative based on but not including actual sub-prime mortgages) vehicle. This was so that he could help select and bet against the very mortgages that went into it - which he expected would default. That is exactly what happened at speed. Paulson made $1 billion. IKB, which believed sub-prime was still very much alive. lost S 150m and needed to be rescued.

Royal Bank of Scotland, via ABN-AMRO lost $840m and ended up with the taxpayer. ABN also believed US house prices were still rising so insured those sub-prime mortgages for asset manager ACA Capital as part of the Goldman deal in return for just $7m!

Goldman's defence is that IKB and ABN

knew the sub-prime risk, and that it too lost .

money, some $100 million. But that was only because It could not unload that part of the CDO it had underwritten despite desperate efforts to do so.

"Greedman" is as ever denying any wrongdoing and vigorously fighting its comer. But this is a bank that has a lot of form - It was called to account for its actions before the Great Crash of 1929 and has now featured in the three subsequent major Wall Street scandals. There is a long rap sheet for greed-driven behaviour criticised by courts, official investigations and regulators, starting in Britain.

Long before John Paulson, sub-prime mortgages and synthetic CDOs, there was Robert Maxwell, who ceased to be a Goldman client in 1991 when he went overboard and his debt-laden publishing empire sank.

In 1993, Goldman Sachs was fined a then record £160,000 plus £125,000 costs by the Securities & Futures Authority (predecessor to the Fundamentally Supine Authority) for a technicality over three 1990-91 deals it did with its client Cap'n Bob worth £60m, as he was busy pillaging the Mirror Group Newspapers pension fund. Goldman paid but did not receive all the shares until a later date, in breach of SFA rules. Goldman Sachs International managing director Gregory Palm apologized for these "errors" but emphasised that Goldman had not been guilty of

market manipulation or diverting pension fund assets.

Despite those denials, the MGN pension trustees sued Goldman and trader Eric Sheinberg for at least $120m in 1994 claiming negligence relating to transactions in Maxwell Communication Corporation shares. This case was settled in 1995 as part of the global deal with Maxwell private companies and City advisers, who paid a total of £276m in compensation for Maxwell's looting of the pension funds.

The SFA made no comment about Goldman's role in that looting. For that the world had to wait for the report from the inspectors appointed by the Department of Timidity & Inaction, which was finally published in 200 I following the 1996 collapse of the criminal cases against Kevin and Ian Maxwell and their little helpers.

That report did not agree with the Palm view of Goldman and Sheinberg's role in Maxwell's secret share deals between 1989 and 1991. The inspectors found that: "Goldman Sachs were the investment bank with whom Robert Maxwell principally dealt when purchasing MCC and MGN shares and bear a substantial responsibility in respect of the manipulation that occurred in the market."

Despite Goldman and Sheinberg's denials, the inspectors concluded: "Mr Sheinberg must have come to appreciate in due course that RM was in fact the purchaser of the MCC shares which, on the face of it, were being sold to the entities [private companies and Liechtenstein foundations] and by reason of the scale of the purchases and the arrangements to avoid disclosure, that the market did not have a true picture. It must subsequently have become apparent to Mr Sheinberg that the assurances he had been given [that Maxwell was not the buyer] were incorrect; Mr Sheinberg must have come to appreciate in due course that the reason for the trades and their structure was to avoid disclosure which would have revealed the involvement of RM."

One 1991 sale of 25m MCC shares was done through New York by Goldman as agent, not principal, because the stake was reportable in London. "There could have been no rationale for effecting the sale ... in New York other than to avoid disclosure," said the report.

"Mr Sheinberg, we conclude, was motivated by the large profits that he perceived could be made by purchasing substantial blocks of MCC shares and disposing of them to RM. The resulting trading relationship was very profitable for Goldman Sachs [£8m from MCC trades and a further £ 15m from other trades]'

"The senior management of Goldman Sachs must have appreciated that RM had a beneficial interest in some of the purchases made by the foundations. Goldman Sachs did not pass this information to any regulatory authority whilst they sought to recover the amounts outstanding their loans to RM's companies."

Last week the same Gregory Palm who defended Goldman and Sheinberg in 1993, now the bank's general counsel, was busy defending Goldman and another trader, "Fabulous" Fabrice Tourre, on the Abacus deal!

The years since the DTI Maxwell report have seen "Greedman" regularly in the sights of the SEC and other civil and criminal enforcers. Most spectacularly with the scandals that rocked Wall Street as a result of the stock market bust of 2000.

October 2002 The US House of Representatives financial services committee accused Goldman of rewarding 21 favoured clients with shares in its own 1999 flotation and other "hot" new issues or IPOs including eBay and Yahoo from 1996 onwards in order to get business. The lucky clients included Enron chairman Ken Lay and Tyco chairman Dennis Kozlowski. Lay died before he could be jailed; Kozlowski is serving 25 years. Goldman denied enabling clients to make instant profits.

December 2002 Goldman was among five banks that agreed to pay fines of $1.65m each to settle actions brought by securities regulators for failing to keep emails and produce them in regulatory investigations.

April 2003 As part of another global settlement, Goldman settled again with the SEC and other regulators after an investigation of research analyst conflicts of interest. The SEC accused Goldman of subjecting analysts to "inappropriate influence by investment banking at the firm" and as a result producing "exaggerated or unwarranted research" - all designed to boost investment bank profits. Goldman, while as usual not admitting anything, paid a $25m penalty, disgorged $25m in profits and agreed to pay $50m to provide clients with independent research and another $ 10m for investor education.

September 2003 Goldman paid $9.3m to settle SEC charges that it failed to prevent traders using inside information on US Treasury bonds provided by its economist John Youngdahl. His tip in 2001 that the Treasury was to stop selling 30-year bonds enabled Goldman to make $3.8m after investing more than $300m. Youngdahl was jailed for 33 months after pleading guilty to insider trading.

July 2004 The SEC fined Goldman $2m for making illegal offers of Asian IPOs by email, failing to supervise employees and making inappropriate statements to the press during 1999 and 2000.

January 2005 Goldman paid $40m in another settlement with the SEC for market manipulation to ensure big first-day gains on lPOs by guaranteeing clients' allocations if they agreed to buy more shares at higher prices - known as "laddering" .

May 2007 An Amsterdam court ruled that Goldman and its Abacus sucker ABN-Amro misled investors in internet provider World Online which they floated in March 2000. Investors lost at least €2bn and sued.

The court judged the prospectus incorrect and incomplete on four main points and that Goldman and ABN failed to take adequate steps to prevent publication of misleading information. The World Online share price first soared then cratered within weeks. It then emerged that founder Nina Brink had sold most of her shares at €6 before the IPO at €43. This had not been made clear in the prospectus. The verdict was confirmed by another Dutch court in November 2009.

April 2009 Goldman is part of yet another global settlement in a civil class action over "laddering" IPO share prices in dot-com and hi-tech stocks by Wall Street banks during the late Nineties and 2000. Goldman once again denied any wrongdoing but still contributed an unspecified amount to the $586m settlement.

May 2009 Goldman agreed to pay up to $60m to end an investigation by the Massachusetts attorney general into the promotion of unfair home loans and predatory sub-prime lending.

February 2010 The US Federal Reserve Bank and Eurostat, the European Commission's statistics agency, launch an investigation into deals done by Goldman in 2000 and 2001 for the Greek government, which had the effect of reducing Greece's national debt before it joined the euro. A series of complex currency swaps trimmed almost £2bn from the debt figure.

Greek bonds denominated in yen and dollars were swapped into euros at "a historical implied •.. See over. ..

market manipulation or diverting pension fund assets.

Despite those denials, the MGN pension trustees sued Goldman and trader Eric Sheinberg for at least $120m in 1994 claiming negligence relating to transactions in Maxwell Communication Corporation shares. This case was settled in 1995 as part of the global deal with

UR clients' interests come first." So runs Maxwell private companies and City advisers,

the constantly repeated public mantra of who paid a total of £276m in compensation for

Goldman Sachs and its chief executive, Lloyd Maxwell's looting of the pension funds.

"God's Work" Blankfein. The SFA made no comment about Goldman's

Faced with the civil fraud attack by the US role in that looting. For that the world had to wait

Securities and Exchange Commission (SEC), for the report from the inspectors appointed by the

Blankfein reassured "Greedman" staff that Department of Timidity & Inaction, which was

"service to our clients" was what mattered. It's a finally published in 200 I following the 19?6

message he's likely to repeat this week when once collapse of the criminal cases against Kevin and

again giving evidence in Washington ~ in. Ian Maxwell and their little helpers.

particular over whether Goldman, In his email That report did not agree with the Palm view of

words, "made more than we lost" through Goldman and Sheinberg's role in Maxwell's secret

"shorting" the sub-prime "mortgage mess" the. share deals between 1989 and 1991. The inspectors

investment bank did so much to create ($33bn In found that: "Goldman Sachs were the investment April 2003 As part of another global

mortgage-backed securities plus underwriting at bank with whom Robert Maxwell principally dealt settlement, Goldman settled again with the SEC

least another $53bn of other people's junk when purchasing MCC and MGN shares and bear and other regulators after an investigation of

between 2005 and 2007). a substantial responsibility in respect of the research analyst conflicts of interest. The SEC

Traders rule at Goldman, and short-term manipulation that occurred in the market." accused Goldman of subjecting analysts to

profits rule traders, not the "long-term greedy" Despite Goldman and Sheinberg's denials, the "inappropriate influence by investment banking at

dictum of former senior partner Gus Levy. So inspectors concluded: "Mr Sheinberg must have the firm" and as a result producing "exaggerated

behind the traditional blustering, "holier than come to appreciate in due course that RM was In or unwarranted research" - all designed to boost

thou" Goldman posturing, it has long been a bank fact the purchaser of the MCC shares which, on the investment bank profits. Goldman, while as usual

that puts profits before anything else and was face of it, were being sold to the entities [private not admitting anything, paid a $25m penalty,

happy to do the bidding of those clients, such as companies and Liechtenstein foundations] and by disgorged $25m in profits and agreed to pay $50m

hedge fund manager John Paulson, who promised reason of the scale of the purchases and the to provide clients with independent research and

to most reward its service. arrangements to avoid disclosure, that the market another $10 million for investor education.

The SEC civil fraud case is that Goldman, did not have a true picture. It must subsequently September 2003 Goldman paid $9,Jm to

which had decided in December 2006 US house have become apparent to Mr Sheinberg that the settle SEC charges that it failed to prevent traders

prices were too high and two months later that assurances he had been given [that Maxwell was using inside information on US Treasury bonds

the sub-prime collateralized debt obligation ~ not the buyer] were incorrect; Mr Sheinberg must provided by its economist John Youngdahl. His

(CDO) market was "dead", did not disclose this. have come to appreciate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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38

foreign exchange rate". Because this was treated as a currency trade rather than a loan this helped Greece appear to meet deficit rules for eurozone members while pushing repayment into the future. The deals were allowed by the letter if not the spirit ofthe rules and Goldman earned an estimated €200m. But then the rules changed and Eurostat claims it was not informed about the deals.

While defending the deals, Goldman director Gerald Corrigan admitted to the Commons Treasury Committee "with the benefit of hindsight ... the standards of transparency could have been and probably should have been higher".

John Paulson was reported in Athens with Goldman some months ago meeting Greek officials. Hedge funds have been aggressive sellers of Greek bonds on the basis that after years of fiddling the books the Athens government will default. Another "big short" that could yet come true despite Greece activating the €30bn emergency eurozone loan last Friday.

Despite its record, the Labour government and Gordon Brown in particular have stayed close to "Greedman", which has earned big fees advising on solving the problems at Northern Rock and L10yds caused in part by the sub-prime mortgage bubble it played a major role in creating. Only after the Abacus revelations did the Supreme Leader find Goldman's actions represented "moral bankruptcy".

But then "Greed man" always had a close friend at the New Labour court in former chief economist Gavyn Davies, whose wife Sue Nye ran Brown's private office. Davies worked for Goldman until 2001 when he was appointed BBC chairman. Goldman may have provided more Tory donors but former senior Goldman partner Jon Aisbitt has donated £1 m since 2005. Even more - £4.125m - has been donated by Indian steel magnate Lakshmi Mittal - a Goldman non-executive director.

The Galleon investigation will bring back bad memories for Goldman. In 1989, Goldman trader Robert Freeman pleaded guilty to insider trading as part of the great Wall Street scandal of the Eighties involving Ivan Boesky and Michael Milken. Freeman was jailed for four months and fined $l.1m.

EYE CROSSWORD 416 by Cyclops

to first correct solution opened on 7 May 2010

Entries to 'Crossword:

Private Eye, 6 Carlisle Street, London W1D 3BN or via email to crossword@private-eye.co.uk

ACROSS

7 Standard fancy woman of Charles, the Irish leader (7)

9 Pope's contraception advice in magazine

section? (4-3)

I] Insult MP, Butcher (9)

12 Member Enclosure 1, Sandown's first (5) 13 Dotty tries to engage once more in

parliamentary business (5)

14 Ladies possibly seek kinky gander (4-3) ] 6 Briefly part of the clique, no friend of Blair (2,5)

19 City of sawn-off shotguns, initially half each (7)

20 Apply tongue all over retiring ex-President of USA and take a rest (3,4)

22 Hairy pair of investigators getting their ends

away (5)

25 Skip gives head to Brenda (5)

26 Frank scoffed as one who'll be 8dn (9)

27 Feature of bidet: enteritis tension relaxer (7)

28 Cameron's second day shift, an 8dn speech? (7)

DOWN

I End of the dire PM - ruined lives - a superficial thing (9)

2 Evans, having been dehospitalised, is a

disaster (6)

3 Bang Lola stupid? Not an earthly! (6) 4 Dodgy football side hides debt (8)

5 Blustering politicians 8dn often are wanting everyone to be a peer with roll (3,4,3,4)

6 A titled person matters if secreting drugs (8)

8 One gin and erectile dysfunction - it's coming to its climax (14)

]0 See 24dn.

]5 No problem getting 'ayes' to vacillate, vegetable-like? (4-5)

17 Quality of 'misery memoirs' makes you spit ("life I traded for agony finally") (4-4)

18 The one mentioned by Blair - i.e. lacking as a

has-been PM (8)

21 Kelvin on NASA's "liberal" state (6)

23 Brian and his mater's alcoholic successor (6) 24/10 Searching examination makes one drunk cite

"DTs" (4,4)

In October] 999, the Bank of England oversaw the secret unravelling of West African mining group Ashanti's hugely loss-making gold derivatives trading book. Ashanti's possible collapse created a potential crisis for the London gold bullion market.

Goldman, which not only advised Ashanti but also had sold it gold derivatives, was its primary counter-party as well as a leading trader in the bullion market. Many in the City were angered by these apparent conflicts of interest - especially over some heavy trading in gold - despite Goldman's usual assurances of "Chinese Walls, old boy" and that any gold trading was for clients and did not use non-public information. Ashanti and the bullion market survived - just.

The Financial Times in December 1999 reported some Goldman executives admitted "that some of the derivatives it sold Ashanti may not have been ideal for a heavily indebted company". But the bank insisted these were "client driven transactions - the responsibility of Ashanti's management". Just like its justification ofIKB and ACA's purchase of the Abacus bonds in 2007.

Last week Goldman's top lawyer Greg Palm was repeating - as Goldman has done on almost every occasion since Maxwell when they have been accused or settled - that the bank "would never intentionally mislead anyone" and "would never condone inappropriate behaviour".

If so "Greedman" would seem to have been spectacularly unlucky to have found itself on the wrong end of so many regulatory and legal decisions.

But perhaps that is inevitable if - as Goldman's top man in Germany Alexander Dibelius told students in January - its employees believe that banks "do not have an obligation to promote the public good".

Crossword 415 winner: PRIMROSE MBANGATHA

ACROSS: I Advance 5 Glasgow 9 Bill and Ben II Arty 12 Browse 13 Cat's-eye 14 Fan club ]5 Cyclic 17 Ulcers 19 Nutcase 2] Bullish 23 Resite 25 Poop 26 Narcissism 27/28/7 One-eyed trouser snake.

DOWN: 2 Drier 3 Allowance 4 Conceal 6 Lunatic 8 On the line 10 Backbencher 14 Full-blown 16 Ceausescu ] 8 Science 20 Terrier 22 Lapse 24 Taste.

HUSBAND

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