[A-List] US legitimation crisis: Goldman Sachs

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

Goldman Sachs fingered by congressional report

David Teather in New York

Goldman Sachs was dragged into the scandals that have shaken Wall Street
when a congressional panel last week detailed a litany of alleged abuses
designed to enrich the New York 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 and disgraced Tyco chiefs Dennis
Kozlowski and Mark Swartz.

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 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.

The committee's chairman, Michael Oxley, said: "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 the
Securities and Exchange Commission (SEC), the markets regulator, and New
York state's attorney-general, Eliot Spitzer.

There is a growing sense among Wall Street critics that the investment banks
that 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. 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."

The Guardian Weekly 10-10-2002, page 14