image
1 of 3
By David Dolan and Pascal Fletcher
JOHANNESBURG (Reuters) - Greg Smith was a principled and competitive student, the kind of person whose strong sense of right and wrong probably pushed him to resign from Goldman Sachs in a scathing letter to an international newspaper, his former teacher and coach said.
A quiet, unassuming child, the South African first attended the private Jewish King David's High School in suburban Johannesburg before winning a scholarship to Stanford University in the United States.
Smith then joined Goldman Sachs, a workplace he once loved but described in his resignation letter in the New York Times on Wednesday as having developed an environment "as toxic and destructive as I have ever seen it".
"He was a remarkable young man, exceptionally intelligent with an integrity that is probably unequalled," Elliot Wolf, the school's retired headmaster, told Reuters in an interview.
"An absolutely remarkable man with high principles. He was an asset to the school in every possible way."
Wolf, who is now retired after 34 years at the school including 28 as headmaster, said he remembered Smith well from teaching him Latin and that he was loved by all because he was polite, unassuming and decent.
The Goldman Sachs banker sat a total of eight exams in his final year of secondary school in 1996, winning a distinction in every subject, Wolf said. According to school records, Smith's subjects included math, advanced math, Hebrew, English, Afrikaans and accounting.
"He was a wonderful young man with the highest principles. That was already part of his character when he was very, very young," Wolf said.
He said he was amazed Smith would take such a stand, suggesting others would probably bend their ethics to suit a company that was rewarding them handsomely.
Smith, who worked in equity derivatives, said it had made him ill at Goldman to hear his colleagues joke about cheating clients.
"Over the last 12 months I have seen five different managing directors refer to their own clients as 'muppets'," Smith said.
In Britain, "muppet" is slang for a stupid person.
"VERY COMPETITIVE"
Wolf also recalled Smith as a skilled table tennis player. Smith, in his 30s, said in his letter one of the proudest moments of his life was winning the bronze medal at the Maccabiah Games in Israel for table tennis.
Rainer Sztab, chair of the Gauteng Maccabi Table Tennis Club, where Smith played in South Africa regularly in the 1990s when he was a teenager, remembered him as an "outstanding kid".
"He was a stand-up kid, he always did what was right," Sztab told Reuters, saying Smith twice played for the South African Maccabi team at the Maccabiah Games in Israel, as a junior in 1993 and as a senior in 1997.
But he said Smith was never a member of the South African national table tennis team, contrary to what was stated in his Goldman Sachs biography.
Sztab said Smith was "very bright and really well liked and behaved".
"He was very competitive. He was just starting to get the edge on the top players in Gauteng province," he added.
Sztab said he was not surprised by the manner of Smith's dramatic public resignation from Goldman Sachs. "He did well to come from South Africa to become a Wall Street banker."
He said Smith had called him two years ago to say hello while on a visit to South Africa.
"He said it was going great."
(Editing by Elizabeth Piper)
=================
UPDATE 7-Departing Goldman banker slams 'rip-off' culture
Wed, Mar 14 20:56 PM EDT
* Calls firm "toxic and destructive"
* Critics say he held a junior role
* Popular Darth Vader parody already out
By Douwe Miedema and Lauren Tara LaCapra
LONDON/NEW YORK, March 14 (Reuters) - Goldman Sachs faced an unprecedented assault from one of its own on Wednesday after a banker published a withering resignation letter in the New York Times, calling the Wall Street titan a "toxic" place where managing directors referred to their own clients as "muppets."
It was the latest blow for the investment bank. The company -- dubbed a "great vampire squid" in a 2009 article in Rolling Stone magazine -- has been embroiled in the biggest-ever insider trading scandal on Wall Street. And just weeks ago, a top judge criticized Goldman for big conflicts of interest in an energy deal.
In an opinion column in Wednesday's Times, Greg Smith, who worked in equity derivatives, said Goldman had become "as toxic and destructive as I have ever seen it.
"It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as 'muppets,'" Smith said.
In the United States "muppet" brings to mind lovable puppets like Kermit the Frog, but in Britain, "muppet" is slang for a stupid person. (Goldman, as it happens, was at one time also the bank for the family of Muppets creator Jim Henson.)
Goldman Sachs issued a short statement in response:
"We disagree with the views expressed, which we don't think reflect the way we run our business. In our view, we will only be successful if our clients are successful. This fundamental truth lies at the heart of how we conduct ourselves."
In a memo to staff, Goldman Chief Executive Lloyd Blankfein and Chief Operating Officer Gary Cohn said Smith's views were in the minority among his 12,000 fellow vice presidents.
"And, what do our people think about how we interact with our clients? Across the firm at all levels, 89 percent of you said that the firm provides exceptional service to them," they said in the memo, a copy of which was reviewed by Reuters.
Congressman Barney Frank, an architect of the 2010 Dodd-Frank financial reform law, said Smith's piece would have "a big impact" on the banking industry's efforts to push back against financial reform.
"It puts the burden on Goldman Sachs and others to show us how what they do benefits the clients and therefore the broader economy," he told Reuters.
Goldman shares closed 3.3 percent lower, on a day when broader markets were up slightly. At least one bank wasted no time in trying to take advantage of the situation.
"In my experience ... client success and firm success can peacefully coexist; in fact thrive," Harris Private Bank Chief Investment Officer Jack Ablin said in an open letter.
"Having served clients for nearly 30 years I can tell you that the long-term success of any institution, whether in the financial field or not, depends on the long-term success and satisfaction of its clients," said Ablin, who oversees $60 billion of investments for individuals and families.
But the company, which sometimes lacks for defenders, garnered at least some public support in response to Smith.
"The many people we have dealt with there have all been exceptionally talented and high-grade, and never once have we had a negative experience in which we felt that they took advantage of us or didn't do what they said they would do," well-known fund manager Whitney Tilson said in a note.
FRIENDLY AND GENUINE?
Smith, who did not return voice mails on his cellphone, carried the title of executive director, but it was not nearly as illustrious as it might sound. Goldman's roughly 12,000 vice presidents and executive directors compare with 450 managing directors -- the next rung up in the Goldman hierarchy and a job classification that Smith didn't achieve. Overall, the company has about 33,000 employees, meaning that 36 percent of Goldman's workforce carried a title similar to Smith's.
South African David Berman, founder of hedge fund Durban Capital and friends with Smith, called him "a very understated, humble type of guy who would tell the truth as truth is important to him.
"But he never struck me as the Goldman-type as he isn't aggressive nor (the) salesman type one expects," Berman said, adding, "I am convinced this is for real with no selfish intent here."
According to the British Financial Services Authority's register, Smith joined Goldman's UK unit a year ago.
Johannesburg-born Smith attended universities in his home country and in the United States, where he received a degree in economics from Stanford University in 2001. He also interviewed to be a Rhodes Scholar in South Africa in 2002.
While at student at Stanford he had a summer internship at Paine Webber in 1999 and a summer internship at Goldman in 2000. Upon graduating from Stanford in 2001, he landed at Goldman.
Internally, Smith's op-ed piece was not necessarily well received. A trader, who knew Smith in passing, said the company is telling staff that Smith is a disgruntled employee who is leaving because he didn't make managing director.
This trader, who did not want to be named, says former Goldman colleagues are saying that Smith "wasn't very commercial," which means he wasn't producing the kind of sales the company wanted.
PAST MEDIA STORMS
Goldman Sachs -- fourth among investment banks last year based on fee-income rankings compiled by Thomson Reuters and Freeman Consulting -- has a history of tension with client interests, experts say.
"Greg Smith refers to the last 12 years, but in fact Goldman has been doing this kind of thing since going back to the Great Depression," author William Cohan told Reuters Insider.
"It's not just the last 12 years; unfortunately it's part of the firm's DNA," said Cohan, author of the Goldman profile "Money and Power" and a former Wall Street banker himself.
In recent years the company has faced other high-profile incidents damaging to its image after the near-collapse of the global banking system in 2008.
Earlier this month it was accused of a major conflict of interest for advising El Paso Corp on its sale to Kinder Morgan, while being a significant shareholder in Kinder.
A lawyer representing an Australian fund in a lawsuit against Goldman over mortgage-backed securities, filed in New York last year and alleging fraud and breach of contract, said he may seek Smith's deposition to help bolster his case.
"Part of Goldman's defense is everybody is sophisticated and everybody knew as much as we knew did," the lawyer, Eric Lewis, said. "But if you're calling your clients muppets -- most muppets don't have the cranial capacity of Goldman."
Paul Volcker, a former Federal Reserve chairman, called the Smith piece a "reflection of the change in market mentality over the last 15, over the last 20 years" at an economics summit in Washington hosted by the Atlantic magazine.
TWITTER IGNITES
Unsurprisingly, Smith's resignation letter captured the imagination of Twitter users. "Greg Smith" was a worldwide trending topic early Wednesday, meaning it had suddenly spiked in interest, while both that and "Goldman Sachs" were trending in the United States.
Many of the commentators expressed surprise about the allegations in the piece, while others called for Smith to shed light on why he left the bank, or pointed out that he seemed to have been employed in a comparatively junior role.
As happens on the Internet in cases like this, near-instant parodies of Smith's letter cropped up. The most popular by far had Darth Vader of "Star Wars" fame resigning from the Empire via a letter similar to Smith's.
"To put the problem in the simplest terms, throttling people with your mind continues to be sidelined in the way the firm operates and thinks about making people dead," the film franchise's dark lord wrote.
==============
Darth Vader quits the Empire after Goldman resignation
Thu, Mar 15 06:11 AM EDT
By Elzio Barreto and Clare Baldwin
HONG KONG, March 15 (Reuters) - If Greg Smith can do it, so can Darth Vader.
The scathing resignation letter of the Goldman Sachs executive has inspired a sheaf of online spoofs written on behalf of several imaginary employees.
Within hours of the New York Times publishing Smith's letter, in which he calls the investment bank a "toxic" place where managing directors referred to their clients as "muppets",
the villain of the popular Hollywood sci-fi epic Star Wars also decided to quit via British satirical website, The Daily Mash.
Using many of the same phrases Smith penned in his letter, Darth Vader said he no longer felt at home in the Empire.
"The Empire today has become too much about shortcuts and not enough about remote strangulation. It just doesn't feel right to me anymore," Darth Vader said in his letter.
The spoofs highlight how investment banks such as Goldman Sachs have become household names after the global financial crisis triggered by the 2008 collapse of Lehman Brothers, and how deeply allegations of corporate greed resonate at a time when recession, joblessness and shrinking incomes have become the norm for many across the globe.
Parodying Smith's righteous tone, columnist Jason Gay penned a resignation letter for New York Knicks coach Mike D'Antoni, who did actually resign from the top-ranked U.S. basketball team on Wednesday.
"Yes, look, I am sorry that I am upstaging the Goldman Sachs guy. I know he probably woke up feeling he was going to dominate the most-emailed list, only to get upstaged by me. What can I say? This is New York, pal," the letter read.
"My proudest moments in life - that seven-game "Linsanity" winning streak; my splendid mustache -- have all come through hard work. But the Knicks have become too much about shortcuts and not enough about achievement. This doesn't feel right to me. We're not a globally influential investment bank."
Other global corporate icons were not spared. Online magazine Slate published spoof resignations of what it called disillusioned employees at retail giant Wal-Mart Stores Inc. , McDonald's Corp. and Google.
"When I started here, there was an entire refrigerator stocked with coconut water. Now, that fridge holds nothing but agave juice. I don't care for it," wrote a fictional Google employee named Bob Randolph.
"When I look at the McRib, I realize that it's no longer about serving the highest-quality ambiguously sourced, rib-shaped meat product," Slate quoted another imaginary McDonald's employee as saying. "How many 'limited-time offers' can we make before we lose the trust of our loyal patrons?"
After Smith's letter was published, some New York Times online readers were as critical of the former executive as he was of his employer, saying such epiphanies often occur after amassing vast amounts of wealth.
Smith's likely large income was also lampooned by columnist Michael Comeau of online financial media firm Minyanville.com, who penned "Why I Am Applying for an Executive Director Position at Goldman Sachs".
"After perusing the career section of your website, I found the perfect opening for a guy like me: executive director, and head of Goldman's US equity derivatives business in Europe, the Middle East, and Africa," Comeau wrote, referring to Smith's former position.
"And more importantly, I know how to keep my mouth shut," he said.
"For example, let's say I was to unhappily quit the firm after, I don't know, 12 years. Having likely made millions and millions of dollars working for Goldman, I would never turn around and blast the firm's bad behavior after filling my bank account with the fruits of that bad behavior."
=========
Goldman person leaked Apple, Intel secrets: lawyer
Sat, Mar 17 02:49 AM EDT
image
1 of 3
By Grant McCool
NEW YORK (Reuters) -
A person at Goldman Sachs Group Inc, who has not been identified or charged in a broad U.S. insider-trading probe, was caught on a wiretap leaking secrets about Intel Corp and Apple Inc, a lawyer for former Goldman board member Rajat Gupta said in court on Friday.
Lawyer Gary Naftalis, in a heated exchange with U.S. prosecutor Reed Brodsky during a pre-trial hearing, said the Goldman person leaked confidential information about the two companies to Raj Rajaratnam, the Galleon Group hedge fund founder convicted of insider-trading charges last year.
Gupta, the best-known corporate executive accused in a sweeping prosecution of insider-trading at hedge funds in recent years, denies criminal charges that he tipped Rajaratnam with Goldman Sachs and Procter & Gamble Co secrets between 2007 and 2009. His trial is scheduled to begin in May.
"In a letter he (Brodsky) said the government had a person who provided confidential information to Raj Rajaratnam about Apple and Intel," Naftalis said. "There is also wiretap evidence, substantial evidence of another source at Goldman Sachs."
Naftalis told U.S. District Judge Jed Rakoff that the defense believed "there is a much more circumstantial case that person should be sitting in the box rather than us" and "the wrong man is on trial here."
A theme of Gupta's defense is that the charges brought by U.S. prosecutors last October are circumstantial and that Rajaratnam had a host of sources tipping him with information. A jury convicted Rajaratnam largely on wiretaps, which traditionally have been used in organized crime and narcotics cases, not white-collar investigations.
Rajaratnam, once a friend of Gupta's, is serving an 11-year prison sentence. Gupta was onetime global head of McKinsey & Co and sat on the boards of several companies.
The judge ended the late afternoon hearing in Manhattan federal court, but Brodsky and Naftalis continued to argue. Brodsky declined to comment.
A Goldman Sachs spokesman, Michael DuVally, declined to comment.
Goldman has been in the spotlight this week with the public resignation of employee Greg Smith, who said in a New York Times op-ed that Goldman had become "as toxic and destructive as I have ever seen it" and was a place he no longer wished to work.
A person familiar with the Gupta case said in early March that prosecutors are investigating David Loeb, a managing director of Goldman Sachs. Loeb works with technology hedge-fund employees, including an Asia-based analyst, Henry King, who is also under investigation, according to another source briefed on the case.
The sources declined to be identified because the matter is not public. Neither Loeb nor King has been accused of any wrongdoing and neither responded to emails asking for comment.
The insider-trading case has drawn in Goldman Sachs Chief Executive Lloyd Blankfein, who was interviewed under oath on February 24 as a witness, according to court documents.
Blankfein testified for the government at Rajaratnam's trial. He is also expected to be called as a witness by the government at Gupta's trial.
The cases are USA v Gupta in the U.S. District court for the Southern District of New York No. 11-907
(Editing by Andre Grenon, Gary Hill)
==================
Exclusive: Goldman's God problem goes away, for now
Sat, Mar 17 10:46 AM EDT
image
By Jessica Toonkel
NEW YORK (Reuters) - Goldman Sachs Group Inc (GS.N) scored at least one victory in an otherwise tough week - this one against a coalition of religious groups.
The bank has been in the spotlight since a mid-level executive resigned and fired off a blistering attack on the firm in a New York Times op-ed on March 14, describing a "toxic and destructive" culture motivated by greed.
For the past two years, a group of religious institutions that hold Goldman shares has asked the investment bank to review executive compensation packages and has been successful in getting its proposal taken up at regular shareholders' meetings.
This year, the group, including the Sisters of St. Francis of Philadelphia, again sought to have its proposal voted on by shareholders. But for the first time, the U.S. Securities and Exchange Commission sided with Goldman, which argued it had already complied with the request.
The SEC's letter of rejection was emailed to the religious groups' leaders on Thursday, the day after the former Goldman executive, Greg Smith, published his scathing op-ed piece in the Times.
An official at the Nathan Cummings Foundation, a Jewish group that is the lead filer of the proposal, said she was somewhat surprised that the agency rejected its request given that the op-ed touched on exactly the issues it had hoped to address.
The 2012 proposal would have asked for an independent board to review the risks, including reputational risks, associated with high executive compensation levels and disclose the findings to shareholders.
"We were asking for an examination of whether Goldman's pay levels were appropriate," said Laura Campos, director of shareholder activities at the Nathan Cummings Foundation. "If people are only motivated by extremely high compensation, it focuses them on the wrong things and can be harmful to the culture.
Goldman's actions, however, still do not satisfy the religious group, Campos said.
"We don't think their current compensation disclosure looks at how compensation relates to internal risk-taking, and how so much compensation creates risks for the company," she said."
Goldman CEO Lloyd Blankfein's base salary was tripled to $2 million in 2011, up from $600,000 the prior year. His share bonus was worth $12.6 million, a 42 percent increase from the year before.
PUSH ON EXECUTIVE COMP
Each annual proposal by the religious group has been worded slightly differently, but all urge the same thing: Goldman needs to curb and better disclose how it determines executive pay.
The SEC sided with Goldman this year because it felt the company had "substantially implemented" the proposal, an SEC spokesman said. "If the company's actions effectively moot the proposal, then we permit exclusion."
In its January 11 letter to the SEC, Goldman described a number of processes that the firm has in place that it says address the religious group's concerns.
For example, the company has an independent committee that reviews executive compensation packages, and it discloses the compensation principles in proxy reports to shareholders, according to the letter. A Goldman spokesman declined to comment beyond the letter.
Goldman's actions, however, still do not satisfy the religious group, Campos said.
"We don't think their current compensation disclosure looks at how compensation relates to internal risk-taking, and how so much compensation creates risks for the company," she said.
The religious group's 2010 proposal, which focused more on disclosing pay ratios between employees and executives, won 5.48 percent of regular shareholders' vote. The 2011 proposal which asked Goldman to evaluate whether senior executive compensation packages were excessive, and would explore how layoffs and fluctuations in revenue affect senior executive pay, won 4.29 percent of the vote.
"For us, the victory was not about winning the vote, it was about getting to present at the meeting," said Sister Nora Nash, director of corporate social responsibility for the Sisters of St. Francis.
Nash said that winning approval to present a resolution for vote at a shareholder meeting represents a moral victory of sorts. "It makes the issue public," she said.
Indeed, dozens of news stories were written about the group and Nash in the last two years, turning up the spotlight on executive pay. The group plans to keep pressing this issue in public.
Goldman's win may be short-lived, said Charles Elson, director of the Weinberg Center for corporate governance at the University of Delaware.
"It's a victory in a sense that it's kept off the proxy this year, but it doesn't make the issue go away," he said. "Getting those groups comfortable with what you're doing - that's the real victory."
(Reporting By Jessica Toonkel; Additional reporting by David Randall in New York; Editing by Jennifer Merritt and Matthew Lewis)
=========
UPDATE 1-Goldman reviews conflict-of-interest policies
Fri, Mar 16 14:51 PM EDT
* Goldman plans to strengthen conflict-of-interest policies
* Bankers may have to tell clients of personal holdings-WSJ
* Changes come after criticism of Goldman in El Paso deal
By Lauren Tara LaCapra
March 16 (Reuters) - Goldman Sachs Group Inc is reviewing conflict-of-interest policies and procedures for investment bankers in light of a recent controversy over a Goldman-advised deal.
The review comes after Goldman was criticized for advising El Paso Corp on its planned sale to Kinder Morgan Inc even though Goldman had a multibillion-dollar stake in the acquirer and its top energy banker held a $340,000 personal stake in Kinder Morgan.
"We regret the El Paso Board wasn't aware of the investment and are reviewing our policies and procedures related to bankers' investments and how they are disclosed with the goal of strengthening them," Goldman said in a statement on Friday.
The review was first reported by The Wall Street Journal, which said Goldman investment bankers may be required to disclose personal financial holdings to clients.
The Wall Street divisions of other banks, including Barclays Plc, Bank of America Corp and Citigroup Inc , are also reviewing how they manage conflicts on investment banking deals, the Journal reported, citing unnamed people familiar with the matter.
Representatives for Citigroup, Bank of America and Morgan Stanley declined to comment. A spokesperson for Barclays could not immediately be reached for comment.
Goldman's multiple positions in the El Paso-Kinder Morgan deal garnered particular attention after a prominent Delaware judge criticized the bank's handling of the conflicts.
"At this stage, I cannot readily accept the notion that Goldman would not seek to maximize the value of its multibillion-dollar investment in Kinder Morgan at the expense of El Paso, but, at the same time, be so keen on obtaining an investment banking fee in the tens of millions," Judge Leo Strine wrote. He said he would "reluctantly" allow the deal to move forward.
Goldman was not blind to such criticism: While the two companies were still in talks, Goldman Chief Executive Lloyd Blankfein told El Paso CEO Douglas Foshee that Goldman was "very sensitive to the appearance of conflict," according to court documents.
Wall Street's banking, trading and wealth-management businesses are rife with conflicts, and large investment banks already have policies in place to handle them, such as "Chinese walls" that research analysts must get special permission to cross if they need to communicate with bankers or traders.
But banks still routinely get into sticky situations. In recent years, Goldman has become enmeshed in conflict-of-interest scandals related to subprime mortgage investments, an investment in Facebook, and its one-time practice of passing analyst tips to important clients before others.
The disclosure to clients of investment bankers' personal financial holdings is not a common practice. While it would be a step toward greater transparency, it is not one that bankers are likely to embrace.
The Goldman banker with a personal stake in Kinder Morgan was Stephen Daniel.
On Friday morning, Morgan Stanley CEO James Gorman characterized conflicts as inevitable and even routine. Morgan Stanley's research analysts and financial advisers talk to clients every day about whether to buy stocks and bonds of companies that its bankers advise, and it is not unusual for a large investment bank to hold a stake in a company it advises on deals, Gorman said at an event hosted by Fortune magazine.
Morgan Stanley handles conflicts by being transparent with clients about its interests, he said.
"The more obvious the conflict, the higher the standard of care," said Gorman. But, he added, "there is inherent conflict -- I can't just say you can't do it."
=========
March 19, 2012, 9:14 am
Standing By the Bankers, Right or Wrong
By CLYDE HABERMAN
Michael R. Bloomberg, who has waged municipal war on guns, sugary soft drinks, tobacco and cars that enter Manhattan in excessive numbers, visited the headquarters of Goldman Sachs a few days ago to let its chief executive and its employees feel the mayoral love.
The Day
The Day
Clyde Haberman offers his take on the news.
Goldman Sachs had taken it squarely on the chin from one of its London-based directors, Greg Smith, who resigned with an incendiary valedictory on the opinion page of The New York Times. It described the investment bank as a plunderer interested only in its own profits and caring not a fig about the clients, referred to by senior bankers as “muppets.” The swagger, Mr. Smith said, was all about ripping clients off and eyeballs out.
valedictory:A closing or farewell statement or address, especially one delivered at graduation exercises.
So the mayor went to Goldman Sachs to offer his sympathy, a reflexive action for someone who owes his fortune to Wall Street but also a display of solidarity with an industry that, like it or not, keeps New York afloat. Something like 40 percent of the city’s income-tax and business-tax revenue comes from the financial world.
“It’s my job to stand up and support companies that are here in this city that bring us a tax base and that employ our people,” Mr. Bloomberg said on Friday.
One can only assume, then, that if circumstances were altered, he would express his love of guns, of sugary soft drinks, of tobacco and, yes, of all those cars that enter Manhattan. It’s a logical extension of what he said.
If he were a mayor in Iowa, he would presumably stand up for corn growers and oppose attempts like New York’s to discourage people from buying beverages sweetened with high-fructose corn syrup. If he were in tobacco-growing North Carolina, he would have to denounce New York’s antismoking campaign. If he governed in Virginia, a leading weapons-trafficking state, he would object to New York’s demonizing of guns. In Michigan, of course, he would be a champion of cars and more cars everywhere, including in the overcrowded heart of Manhattan.
In each instance, Mr. Bloomberg could use the same words: “It’s my job to stand up and support companies that are here in this city that bring us a tax base and that employ our people.”
My tax base, right or wrong, has been the mayor’s policy throughout these years of financial distress, never mind that Wall Street’s excesses deserve a fair measure of blame. He has bridled at efforts to put the money men on a tighter leash, and insisted that Congress, not the banks, created disasters like the mortgage crisis.
Bridle: A harness, consisting of a headstall, bit, and reins, fitted about a horse's head and used to restrain or guide the animal.
A curb or check: put a bridle on spending.
Not that he is alone in this regard. Two years ago, then-Gov. David A. Paterson similarly took up a leave-the-bankers-alone chant. “What we have to understand,” Mr. Paterson said, “is that Wall Street is to our state what grapes are to California, what automobiles are to Michigan and what oil is to Texas.”
What does that mean? If wine is found to be tainted, if cars have defective brakes, if an oil company fouls the Gulf of Mexico, we should applaud politicians in California, Michigan and Texas who keep lips zipped?
For his part, Mr. Bloomberg embraced an editorial that appeared on Bloomberg View, the opinion arm of Bloomberg L.P. He had nothing to do with the editorial, the mayor said on his weekly radio show on Friday, but “the guy who wrote it had it exactly right.”
In a snarky tone, the editorial took Mr. Smith to task for acting as if his investment bank were “something like the Make-A-Wish Foundation.”
“Yes, Mr. Smith,” the headline said, “Goldman Sachs Is All About Making Money.”
But it misrepresented the essence of Mr. Smith’s Op-Ed article. His broadside was not against making money but, rather, what he described as an all-encompassing climate of overweening(Presumptuously arrogant; overbearing:) greed. The distinction is important.
By the way, that business about “muppets”? It’s supposed to mean that clients are numbskulls. But we confess to being fond of Muppets, especially Kermit the Frog. Shouldn’t people who are interested in money for its own sake feel the same? Surely, they appreciate that it’s not easy being, or making, green.
========
Goldman loses bid to end lawsuit over risky CDO
Wed, Mar 21 15:50 PM EDT
image
1 of 2
By Jonathan Stempel
NEW YORK (Reuters) - Goldman Sachs Group Inc lost its bid to dismiss a lawsuit accusing it of defrauding investors by selling risky debt linked to subprime mortgages that it planned to bet against.
The decision by U.S. District Judge Victor Marrero in New York keeps alive a hedge fund's claims over a $2 billion offering of collateralized debt obligations, amid intense scrutiny over Goldman's activities before and after the 2008 financial crisis.
hedge fund
n.
An pooled investment fund, usually a private partnership, that seeks to maximize absolute returns using a broad range of strategies, including unconventional and illiquid investments.
Marrero said the hedge fund Dodona I LLC may pursue nearly all its claims against Goldman, including that the Wall Street bank recklessly or intentionally sold the Hudson Mezzanine Funding CDOs to offload subprime risk on unsuspecting investors.
Collateralized Debt Obligation - CDO
An investment-grade security backed by a pool of bonds, loans and other assets. CDOs do not specialize in one type of debt but are often non-mortgage loans or bonds.
Investopedia Says:
Similar in structure to a collateralized mortgage obligation (CMO) or collateralized bond obligation (CBO), CDOs are unique in that they represent different types of debt and credit risk. In the case of CDOs, these different types of debt are often referred to as 'tranches' or 'slices'. Each slice has a different maturity and risk associated with it. The higher the risk, the more the CDO pays.
"Goldman's sudden -- and prescient -- shift to reducing subprime risk supports the inference that it possessed some unique insight" about the "bittersweet potion" of CDOs it was selling, Marrero wrote in a 64-page decision.
Match: prescience and others.
pre·science (prĕsh'əns, -ē-əns, prē'shəns, -shē-əns) pronunciation
n.
Knowledge of actions or events before they occur; foresight.
A Goldman spokesman, Michael DuVally, declined to comment. Richard Klapper, a lawyer for the bank and co-defendants Peter Ostrem and Derryl Herrick, who were Goldman structured finance executives, did not immediately return a call seeking comment.
Lawrence Lederer, a lawyer representing Dodona, called Marrero's decision "extremely well-reasoned, measured, and very substantially supported. We are eager to ultimately try the case on behalf of our client and other investors in the Hudson CDOs."
SCRUTINY FROM WASHINGTON
The decision was issued one week after Goldman faced a public assault from former banker Greg Smith, who in a New York Times op-ed piece called the bank a "toxic" place that put its own interests ahead of those of its clients.
Goldman's CDO practices have drawn regulatory scrutiny. In April 2010, Goldman agreed to pay $550 million to settle U.S. Securities and Exchange Commission charges that it sold the risky Abacus 2007-AC1 CDO while letting hedge fund billionaire John Paulson bet against it. The bank did not admit wrongdoing.
Bet: An agreement usually between two parties that the one who has made an incorrect prediction about an uncertain outcome will forfeit something stipulated to the other; a wager.
An amount or object risked in a wager; a stake.
Last April, the U.S. Senate Permanent Subcommittee on Investigations concluded that Goldman tried to profit at clients' expense ahead of the 2008 financial crisis by shedding exposure to subprime mortgages, including by selling the Hudson securities, and then shorting that market.
"RUBE GOLDBERG-LIKE" SECURITIES
Dodona was formed in 2007 by Alan Brody, who also created the firm Epirus Capital Management LLC.
It accused Goldman of creating the Hudson Mezzanine Funding 2006-1 and 2006-2 CDOs, which were backed by residential mortgage-backed securities, in late 2006 as part of a secret scheme to offload subprime risk.
The hedge fund said it lost nearly all of its $4 million investment, selling its holdings for 2.5 cents on the dollar in October 2007 after having paid 95 cents or 100 cents on the dollar the previous winter.
Marrero dismissed one claim by Dedona that accused Goldman of market manipulation.
But the judge said even "large sophisticated" investors such as Dodona might not have understood Goldman's CDOs, and that the bank's boilerplate disclosures on their "speculative" nature might be inadequate.
Goldman "created the synthetic CDOs here in dispute, a form of investment instrument that, Rube Goldberg-like, few but a select group of its own designers, engineers and lawyers could clearly explain, let alone understand, precisely how it functions or exactly what it does," the judge wrote.
The case is Dodona I LLC v. Goldman Sachs & Co et al, U.S. District Court, Southern District of New York, No. 10-07497.
(Reporting By Jonathan Stempel in New York; Editing by Lisa Von Ahn, Gerald E. McCormick and Bernard Orr)
=======
U.S. wants Gupta insider trading jury to hear Rajaratnam calls
Tue, May 01 01:04 AM EDT
image
By Grant McCool
NEW YORK (Reuters) - Prosecutors want the jury in May's insider trading trial of former Goldman Sachs director Rajat Gupta to hear three secretly-recorded phone conversations of Galleon Group hedge fund founder Raj Rajaratnam as evidence of the purported conspiracy between them.
In a pre-trial filing in Manhattan federal court on Monday night, the government said two of Rajaratnam's conversations with his principal trader and another with Galleon's then portfolio manager showed Gupta leaked Goldman board secrets at the height of the financial crisis in 2008. The calls were recorded by the Federal Bureau of Investigation.
"Rajaratnam's statements in these three recorded conversations are essential evidence of the insider trading charges against Gupta in this case," prosecutors Reed Brodsky and Richard Tarlowe wrote to U.S. District Judge Jed Rakoff.
The government said Gupta had passed the Goldman information to Rajaratnam in earlier phone calls that were not part of the FBI's wiretap surveillance of Rajaratnam, who is serving an 11-year prison term, the longest handed down for insider trading, after his conviction at trial a year ago.
A spokeswoman for Gupta's lawyer, Gary Naftalis, declined to comment on the government's motion. Defense lawyers have until May 11 to respond. The trial is scheduled to start on May 21.
Gupta, also a former global head of McKinsey & Co, is the highest-ranking corporate executive to be charged in a broad U.S. crackdown on insider trading at hedge funds in recent years. Dozens of people have pleaded guilty or been convicted at trial.
Gupta is accused of providing inside tips about Goldman and Procter & Gamble board meetings to Rajaratnam in 2007 and 2008. Rajaratnam was recorded by the FBI discussing the Goldman information with trader Ian Horowitz and portfolio manager David Lau.
The indictment said Gupta gave Rajaratnam advance knowledge of a $5 billion investment in Goldman by Warren Buffett's Berkshire Hathaway Inc at the height of the 2008 financial crisis, Goldman's surprise fourth-quarter 2008 loss, and P&G's quarterly earnings in late January 2009.
Monday's government motion argued that since there were no recordings of phone conversations between Gupta and Rajaratnam on September 23 and on October 23, 2008 and no other participants, "Rajaratnam's statements in the subsequent wiretapped calls with Horowitz and Lau provide indispensable evidence" that Gupta tipped Rajaratnam and that Rajaratnam purchased and sold Goldman stock on September 23 and October 24 on the basis of those tips by Gupta.
The former Goldman and Procter & Gamble director has denied the charges, which include five counts of securities fraud and one count of conspiracy. Gupta says he lost money investing with Rajaratnam and that as many as four other Goldman personnel could have been tipping Galleon. Gupta could face up to 25 years in prison if convicted of securities fraud.
Horowitz has been described in the case as an unindicted co-conspirator. A lawyer for Horowitz could not be reached to comment.
The case is USA v Gupta, U.S. District Court for the Southern District of New York, No. 11-907.
(Editing by Ryan Woo)
===
Tipping the odds
Risk of testifying could pay off for Raj Gupta
18 May 2012 | By Reynolds Holding
Save
The high risk of taking the stand in person could pay off for Rajat Gupta. The smart money says the former McKinsey boss and Goldman Sachs director won’t testify at his insider trading trial, which starts on Monday in New York. But the prosecution’s case is largely circumstantial, leaving him plenty of room to explain.
Sure, such a move could backfire. Imprisoned chief executives like WorldCom’s Bernie Ebbers, Tyco’s Dennis Kozlowski and Enron’s Jeffrey Skilling probably wish they’d clammed up at trial. All fell into the common trap of giving testimony that was at odds with pre-trial comments. They came off as liars.
But Gupta’s case is different. He isn’t known to have made any statements, except to jailed insider trader Raj Rajaratnam in a wire-tapped call about a Goldman board meeting. Prosecutors say that conversation, and three others in which Rajaratnam allegedly talks about him, prove he illegally shared confidential information.
Gupta’s lawyers may argue that the information discussed in the first conversation was public. But it’s up to him to explain how Rajaratman’s bragging in the other three calls about tips from a Goldman friend couldn’t have been about him. He also needs to say what certain other calls - unrecorded, but suspiciously timed - were actually about. Doing so credibly in person could make a difference.
Meanwhile, a pillar of Gupta’s defense is that he and Rajaratnam had a falling-out before any of these phone calls, so passing on tips would not have benefited him, an essential requirement for an insider trading conviction. A personal appearance might shed useful light on the relationship between the two men.
Perhaps most significant, Gupta’s reputation for integrity was solid until his indictment. And he earned it hauling himself up from a difficult childhood in India to the blue-blooded American establishment. A story like that could carry enormous weight if told in his own words.
Of course, Gupta would risk prosecutors exploiting any inconsistencies or undisclosed past indiscretions. (Lack of discretion; injudiciousness.) And his lawyers will almost certainly wait to see how the prosecution’s case unfolds before deciding whether to put him on the stand. But with the public lusting for a boardroom scalp, this is no time to play it safe.
Rajat Gupta, the former head of consulting firm McKinsey and board member of Goldman Sachs and Procter & Gamble, goes on trial on May 21 in New York federal court for allegedly passing inside information to Galleon Group founder Raj Rajaratnam.
The criminal conspiracy and securities fraud charges accuse Gupta, 63, of leaking details of P&G and Goldman board meetings to Rajaratnam, including confidential word of Berkshire Hathaway’s $5 billion investment in the Wall Street firm in 2008.
Rajaratnam was sentenced on Oct. 13 to 11 years in prison for conspiracy and insider trading.
===
Forensic Auditing PERSPECTIVE
Broker of Record Chang operates a multi-office brokerage that has an
administrative staff of seven, along with five
branch managers. Chang is generally viewed as a hands-on broker of
record, but readily admits that keeping track of
everything in a 200-person operation has its challenges. Recently, a
forensic auditor spoke to the local chamber of
commerce. Chang, while confident in her team, had often wondered about
such activity and took the opportunity to
hear this expert.
Brokers of record, while not commonly faced with issues of fraud,
should nevertheless be aware of its potential
given the large amounts of money flowing through brokerages. Following
are the closing remarks from that speech
presented by M. Pickard, a chartered accountant with an international
accounting firm.
Warning Flags
…In summary, my primary function as a forensic auditor is to seek
evidence suitable for a court of law, even though
litigation or law enforcement may not be the final result of such an
audit. Basically, I approach any forensic assignment
with an investigative mentality, complemented by the application of
sound accounting principles and skills.
Of course, a solid grounding in fraud knowledge is essential.
To reiterate, two types of fraud predominate in the marketplace. Many
in my field refer to these as ‘off book’
and ‘on book’ fraud. The former, most commonly associated with illegal
payments and criminal activities, typically
involves drug trafficking, protection rackets, skimming and the like.
The latter involve frauds regarding the books
of a business. In fairness, some complex forms of fraud can involve an
intriguing interplay of both. Make no mistake
about the magnitude of this problem. Costs to business, both through
off book and on book fraud, are enormous.
The majority of fraud is committed by employees and, incredibly, most
are discovered simply by chance.
Actually, no-one can accurately estimate its true cost. Given the
dramatic rise in value of intellectual rights in our
burgeoning digital economy, the potential for fraud now embraces not
only company books of account and
inventory, but also intangibles
that are even more difficult to track and control. To compound matters,
most action
to prevent fraud is reactive in nature. In simple terms, we too often
decide to lock the gate after the horse is gone.
On a brighter note, research indicates that prudent management and the
institution of comprehensive fraud prevention
controls can dramatically
impact both occurrences, as well as the scope of such happenings.
Fortunately,
corporate perspectives are changing on this important issue.
Increasingly, I am called into companies not because
of identified fraud, but rather as a pro-active management decision to
assess the current status, evaluate procedures
and make recommendations.
For most of you in attendance today, fraud will arise either through
some form of false financial reporting or
misappropriation of assets. In layperson’s terms, financial records (or
source documents) are either manipulated,
falsified or altered, and/or company
assets (typically inventory) are misappropriated. Misrepresentations
can
involve more than one person and typically revolves around the omission
of salient information, the direct theft of
monies or other assets, embezzling and misuse of assets accompanied by
misleading documents to obscure the fraud.
Let me go beyond general accounting principles and forensic techniques
to give you personal observations
concerning those most vulnerable to corporate fraud. Now, keep in mind
that I am normally dealing with senior
management, however, these observations could apply to any management
team, a branch manager or an
individual in a position of authority within your brokerage. I have
developed various warning flags when I enter an
office and interview the senior management team. You will have to adapt
these to your particular circumstances.
• Management personnel are overly evasive in response to direct
questions concerning company operations.
• The company displays weak financial controls and reporting systems
are infrequently checked.
• Management personnel demonstrate a lack of respect for regulatory
bodies.
• Management is effectively controlled by one individual other than the
owner, or by a few persons routinely
acting in concert beyond the immediate perusal of senior management.
• Risk taking appears as a routine event and the company operates
without a defined strategic plan and/or
business plan that is periodically updated.
• The company is only loosely structured in terms of management
reporting mechanisms
and lacks an ongoing
plan for monitoring financial and other performance indicators.
• Profitability is not in step with other similar businesses in the
marketplace.
• The company is in a stage of dramatic growth and management are
inexperienced.
These are a few of many items on my checklist. Obviously, their
existence does not indicate that fraud is present,
but rather that the environment is more conducive to such activity.
Remember, fraud knows no industry boundaries.
Whether your business involves retail sales, manufacturing or the
service sector, prudence is the best policy. A few
pro-active measures at this point not only will improve your overall
operation, but also go a long way to avoiding
the potential for a significant problem in the future. Each of you can
be your own forensic auditor on a daily basis.
No comments:
Post a Comment