More to the Goldman Sachs VP's Story

Earlier this year, a VP at Goldman Sachs, Greg Smith, resigned and published his resignation letter in the New York Times. In his letter he laid out claims that Goldman's business model is to consciously rip off their clients. 60 Minutes recently did a story on Smith and interviews him along with numerous other individuals. Smith has recently published a book titled "Why I left Goldman Sachs." Goldman officials claim that Smith has a personal vendetta against his employer. On the other hand, Smith is not the first person to criticize Goldman or the investment banking industry for unethical business practices. Many trace some of the major economic downturns of our times back to this industry including major frauds like Enron and Worldcom as well as the mortgage meltdown. Check out the 60 Minutes story if you're interested in hearing more from Smith and his allegations against Goldman.

Wall Street Justice: An Oxymoron?

It looks like the U.S. Department of Justice has decided to give Wall Street firms and their top executives a "get out of jail free" card over the last several years. The latest example of this is the MF Global scandal with the former governor of New Jersey, Jon Corzine, and company appearing to get away with $1.6 billion of customer assets that are "missing." An Op-Ed in the NY Times explains Corzine's crimes this way:

Lance Armstrong Investigation Update

The news on the Lance Armstrong fraud investigation has been non-existent lately. However, some news came out today that Lance has hired a big gun to help him with public relations and legal defense. His new special counsel and media expert is Mark Fabiani. Apparently, Fabiani worked for Bill Clinton during the Whitewater investigation and more recently helped Goldman Sachs keep their image intact while they were being investigated for fraud by the SEC. This guy must be pricey! I take it Lance is nervous about this investigation.

Also, the same article said that George Hincapie also hired a big NY law firm. This news broke about the same time that George crashed out of the Tour of Utah and needed 18 stitches. It seems to me that Lance and George have had more accidents since Floyd Landis alleged they cheated for years. Sorry to hear about it George.

As for improving Lance's image, Fabiani got right to work and continued the same old story: Floyd has no credibility (see this link for more on that) and investigating athletes for doping is a waste of taxpayer money. Nothing new here. I hope Lance gets his money's worth from this guy.

As for a waste of money, I personally think paying a media expert to make you look better is money that could have been better used. Image is everything to fraudsters. Con men build confidence in themselves. Smooth talkers with little or no character...

In the end, I doubt the government will get a verdict against Lance and I doubt Fabiani will keep the majority of the public from believing Lance is a fraud. It reminds me of the OJ Simpson case. He was never convicted criminally for murder but if you think he's innocent then I'm sure there is a nice Ponzi scheme waiting to get your money.

$550 Million Settlement for Goldman Sachs

Goldman Sachs will settle with the SEC for $550 million over charges of fraud related to Goldman's sale of subprime mortgage products.  Goldman neither confirmed nor denied wrongdoing, but "acknowledged that its marketing materials for the subprime product contained incomplete information."  The SEC seems pretty proud of the settlement, noting:

Ethics Optional

What good is a public code of ethics ending in a provision saying:

From time to time, the firm may waive certain provisions of this Code.

Sounds pretty shady, right?  At a minimum such a provision seems odd--why even publish a code of ethics when you acknowledge that the code is non-binding?  Actually, these kind of cop-out statements are pretty common for companies who publish their code of ethics.  The above disclosure comes from Goldman Sachs and similar clauses can be found in codes of ethics of companies like Exxon Mobil.  The Motley Fool has a great article discussing these clauses.  Here is one paragraph I particularly enjoyed (referring to waivers of a firm's code of ethics):

The latest news on the investment banks

If you're tuned into the news these days, you probably have heard today that the SEC has charged Goldman Sachs with fraud regarding the subprime mortgage fiasco that is blamed for the "great recession." Some observers are speculating that this fraud case could be as significant as Enron was. If so, I would expect Goldman's stock to tank over the next few days as a complete picture of the fraud comes to light.

As for now, here is what we know. Both the WSJ and the LA Times reports that Goldman was essentially passing profits to a hedge fund known as Paulson & Co. The LA Times article explains Goldman's fraud as follows:

The SEC's lawsuit alleges that Goldman did not tell investors in the securities that they were based on a portfolio of mortgage bonds selected by a hedge fund. The investment bank subsequently helped the hedge fund, Paulson & Co., place bets against the same bond portfolio, the suit says.

Meanwhile, earlier in the week, The NY Times reported that Lehman's accounting methods are looking shadier by the minute. In particular, the Times article explains:

In the years before its collapse, Lehman used a small company — its “alter ego,” in the words of a former Lehman trader — to shift investments off its books.

The firm, called Hudson Castle, played a crucial, behind-the-scenes role at Lehman, according to an internal Lehman document and interviews with former employees. The relationship raises new questions about the extent to which Lehman obscured its financial condition before it plunged into bankruptcy.

While Hudson Castle appeared to be an independent business, it was deeply entwined with Lehman. For years, its board was controlled by Lehman, which owned a quarter of the firm. It was also stocked with former Lehman employees.

None of this was disclosed by Lehman, however.

I wonder which investment bank will be in the news for fraud tomorrow?

Goldman helps Greece lube their balance sheet

It looks like the investment bankers are back devising deals to create off-balance sheet debt. They were very instrumental in helping Enron figure out how to hide their true debt and it looks like Greece was in need of this expertise in order to meet the European Union deficit rules. It seems that whenever a financial rule is made there are some bright guys figuring out how to design transactions that get around the rule. I think this is another example of too many bright finance experts on Wall Street who have dim moral compasses. You can read more about Greece and Goldman Sachs here.