Let me start by saying that everyone guns for the top dog. It's just one of those things. But, wow are a lot of people gunning for Goldman Sachs these days. It seems like everyone has a complaint, and judging by the past few months, those complaints are rather diverse, to say the least. Perusing the myriad suits that follow GS around teaches one some odd lessons about the firm:
- Women who worked for GS in the late 90s (and likely the entire time prior) did not seem to have a good experience. I can't speak to how it is currently, but for the ladies currently there, it's probably best to walk yourself home (or take a cab) after spending time at the strip club.
- For all of the trouble Detroit is in these days, GS owns a substantial amount of property over there. Sadly, they were allegedly used to artificially inflate the price of aluminum.
- Apparently, anyone who knows anything about structured products works for GS. However, the Goldman employee who sells one to you probably isn't one of them.
I like to see companies with well diversified litigation portfolios. So, what exactly is going on here? Short answer, a lot of people are upset with the firm. Long answer...
We all remember the story posted here a short time ago detailing an amusing court case where a businessman was suing GS over, at best, a poorly explained trade. Goldman, according to Bloomberg, has recently been able to enter into arbitration pending appeals:
A Goldman Sachs Group Inc. (GS) unit won a bid to halt Singaporean wealth-management client Oei Hong Leong’s lawsuit over trading losses on the Brazilian real in favor of private arbitration.The ruling was made in a closed hearing today at Singapore’s High Court. Oei’s lawyer Siraj Omar said he planned to appeal the decision.
You don't have to look far for another example of similar shenanigans by Goldman. Today, Bloomberg noted that they are also being sued by the Libyan Investment Authority (LIA), the country's sovereign wealth fund.
The Libyan Investment Authority, the north African nation’s sovereign wealth fund, sued Goldman Sachs Group Inc. (GS) in the U.K. over investments worth more than $1 billion.Libya’s sovereign wealth fund built up assets of about $60 billion under Muammar Qaddafi, who was deposed and killed in a 2011 coup. The LIA lost about $1.75 billion betting on structured products in 2007 and 2008, about $900 million of which was with Goldman Sachs, its former chairman said in June 2012.
We have all heard about the aluminum racket that JPM and GS were running, but just in case you need a refresher, here's Bloomberg's explanation:
Delays of as long as 16 months in filling orders raised prices for makers of outdoor porch screens, flashlights and other products that contain aluminum, according to the complaints.
What I find particularly interesting about this case is that its epicenter was Detroit. Not to suggest that Detroit is a Mad Max style wasteland devoid of anything productive, but it is having some pretty serious problems. To find out its place in the world of aluminum was rather interesting:
Detroit is the world’s second-biggest repository for aluminum stockpiles monitored by LME, the world’s largest industrial metals marketplace. Goldman Sachs’s Metro International Trade Services LLC has the most LME-approved warehouses in the city.“The monopoly allegedly occurred in Detroit,” Christopher Lovell, an attorney who filed the first of the lawsuits on Aug. 1 on behalf of Gwinn, Michigan-based aluminum fabricator Superior Extrusion Inc., told the panel in Las Vegas.
The restraint of trade “emanated” from Detroit, where 75 percent of the warehoused aluminum in the U.S. is stored, he said.
Goldman's big problem, as far as I can tell, comes from recent litigation regarding some discriminatory practices the firm engaged in during the late 90s. Bloomberg notes:
Goldman Sachs Group Inc. (GS) must turn over internal gender-bias complaints by female workers to lawyers representing women in a lawsuit alleging the firm discriminated against them in pay and promotions.U.S. Magistrate Judge James Francis in Manhattan ruled yesterday that all complaints “conceivably related” to discrimination against women in the investment banking, securities, investment management and merchant banking divisions at Goldman Sachs must be shared with the attorneys, including the names of those who complained.
The issue at hand is awfully serious. The plaintiff's story is reminiscent to what you'd see on a particularly dark episode of Mad Men as opposed to the pages of Bloomberg:
The plaintiffs are H. Cristina Chen-Oster, a former vice president; Lisa Parisi, a former managing director; and Shanna Orlich, a former associate. They said in their complaint that Goldman Sachs gives its managers, most of whom are men, “unchecked discretion” over assigning responsibilities to their subordinates.Chen-Oster claimed she told her supervisor in 1999 about an incident that took place in 1997 at a firm-sponsored dinner for a male employee who had been promoted to managing director. After the outing, which included a stop at a Manhattan topless bar, a male colleague pinned Chen-Oster against a wall outside her apartment, kissing and groping her.
Chen-Oster, after reporting the incident, was subjected to increased hostility and found herself marginalized at the firm, according to the complaint.
“While Chen-Oster’s career growth stagnated, the male colleague involved in the 1997 incident was promoted to managing director and finally partner,” according to the complaint. “Over the same period, he saw his compensation increase by more than 400 percent.”
Granted, the problems described occurred nearly two decades ago, so I have to imagine they've cleaned it up since then. Nevertheless, wow, that's ridiculous. I'd be awfully pissed, too.
I know many of you monkeys have strong feelings about Goldman Sachs, what do you think about all of this? Is this just a series of unfortunate events for an otherwise well behaved firm? The predictable conclusion of very bad behavior? Or, is Goldman Sachs going gangster?
Out of the three options you listed at the end, most definitely the second. It is not "an otherwise well-behaved firm," nor do I think it is "going gangster."
I'm a conservative Republican, pro-free market capitalist, but I hope Goldman Sachs is shut down. They are America's chief crony capitalist, so far in bed with the government that it's astonishing. They are the poster child for the "revolving door" between the federal government and Wall Street. They represent everything that is wrong with our corporate business culture in this country.
As far as the discrimination complaints, I know statutes of limitation apply only (or mostly) to criminal law, but isn't there some sort of unspoken statute of limitation on discrimination claims? I mean, we're going back 17 years now. Nevertheless, a lawsuit couldn't happen to a more deserving company--I hope they are taken for everything they've got.
GS is just overwhelming. They parachute their high flying/highly connected executives to the keys positions in economical, political and even justice spheres in plenty of American or European countries(falsification of Greek's public accounts, its role during the subprime crisis...).
I know the aluminum case quite well. LME's board is partly composed of ex executives/affiliated ppl from GS. The funny part is that LME earns between 1% and 5% on the stockage fees paid by the buyers (and not the supplier i.e. GS)... and as the board is composed of GS affiliated...
You seem to have forgotten Goldman's role in the infamous Greek tragedy of the off-balance sheet ccy swaps...
At any rate, it's all in a day's "God's work", innit?
You will find this as no big surprise: I'm not a big fan of Goldman Sachs. I think @DCDepository expressed my sentiments exactly.
But Lloyd is just so gosh-darned charming...
1) While I consider the treatment of women in the 90's to be the most reprehensible of these suits, I don't think it's exclusive to Goldman. I'd wager that it was just as bad at Merrill, MS, JP Morgan, etc. in those days. Wall Street culture has gotten considerable more politically correct in the past 20 years. If this suit is successful, expect a floodgate of other complaints in the future.
2) You can argue about the ethics of manipulating the supply of aluminum in the marketplace but I think it makes sense that GS would choose an area with extremely low rent costs to warehouse a commodity to increase any trading related profits. I don't know the full story behind this, but if GS and JPM (selectively choosing a participant aren't we?) were following LME regulations, it's gonna be hard to find any legal wrong doing here. I wouldn't be surprised if I'm wrong here though.
3) This just pisses me off. I think GS has been unfairly punished for facilitating massive money-losing trades for poorly managed investment firms that lost money out of sheer stupidity. As a market maker, there's no way that GS made the exact amount of profit that the LIA lost (no way GS is dumb enough to take that size of bet unhedged?). It was also pretty clear that the firm that dealt with Tourre would've bought those CDOs whether Paulson was short or long because at the time they were seen as free yield. Suing someone because you lost money is just trying to find a scapegoat if you ask me,
I'm by no means a GS apologist, but to single out them after the litany of cases settled by JPM, Citi, Bank of America, et. al is just dumb.
GS taught me a lot about risk management and I've never worked for them nor been an intern there. Lessons about how to maneuver in the market can be found in least likely places. I'm glad GS exists.
Risk management lesson #1: ingrain yourself within the federal government and with both parties and the bureaucracy and never worry about risk management.
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