[A-List] US legitimation crisis: Goldman Sachs

["Keaney Michael" <Michael.Keaney@xxxxxx>]

'Flipping' Goldman fingered

Congressional report offers damaging summary of bank's dotcom boom years

David Teather in New York
Friday October 4, 2002
The Guardian

Goldman Sachs was yesterday dragged into the scandals that have shaken
Wall Street when a congressional panel detailed a litany of alleged
abuses designed to enrich the bank and its clients.

The allegations were made in a report from the House financial services
committee, which provided a damaging indictment of Wall Street practices
in the 1990s boom.

Goldman was accused of allocating shares in sought-after stock market
flotations to executives of 21 companies as an inducement for investment
banking business. The shares were distributed to, among others, former
Enron chief executive Kenneth Lay, disgraced Tyco chiefs Dennis
Kozlowski and Mark Swartz, and John Legere of Global Crossing.

Other Goldman clients to have received shares in oversubscribed IPOs
included the last remaining dotcom favourite, Meg Whitman, chief
executive of online auctioneer EBay, Jerry Yang, the co-founder of
Yahoo! and William Clay Ford, of Ford Motor Company. Ms Whitman is a
Goldman director and EBay has paid the firm $8m in investment banking
fees since 1996.

But the report also highlights broader abuses during the internet-driven
frenzy of the last decade. They included the use of research to hype
companies that were investment banking clients, the possibly illegal
underpricing of IPO shares to enable quick profits, and potentially
improper due diligence in bringing companies to market.

Two thirds of the 22 firms brought to market by Goldman examined by the
committee have since lost at least 96% of their value, and several have
filed for bankruptcy protection. The committee noted that Goldman
dropped analyst coverage of 17 but did not, in a single case, issue a
"sell" recommendation. "Our goals are to correct abuses in the markets
and to make the system fair for the average investor," said the
committee's chairman, Michael Oxley.

"People are willing to take a risk with their money, but they're not
willing to gamble when the system seems rigged against them. There is no
equity in the equities market."

The report also noted alleged abuses at Salomon Smith Barney and Credit
Suisse First Boston, which have both been under the spotlight of markets
regulator the SEC and New York State's attorney-general, Eliot Spitzer.

There is a growing sense among Wall Street critics that the investment
banks which made it rich in the 1990s not only profited from the boom
but were the driving force behind its creation - and the damaging slough
that has accompanied its bust.

The SEC yesterday reached agreement with Mr Spitzer, the New York stock
exchange and others, to coordinate efforts on their investigations. In
the next few weeks they will develop a template that can be used to work
out settlements for the inquiries still under way.

Many sold the shares within days for a huge profit - so-called flipping.
Eight of the firms Goldman underwrote gained at least 173% on the first
day of trading. Tyco has given Goldman $57m in banking fees since 1996,
Global Crossing has paid $45m and Enron $19m.

A spokesman for Goldman said the report was "an egregious distortion of
the facts". Recipients of the IPO shares were clients of the bank's
private wealth management business who had placed orders for shares.
"Any suggestion that we were involved in improper practices is simply
untrue."