Goldman Sachs Ethical Issues

“It takes many good deeds to build a good reputation, and only one bad one to lose it.” (Ben Franklin). Goldman Sachs was the most prestigious investment bank with over one hundred years of good business history and on September 21st, 2008 it reorganized itself as a bank holding company. As a bank holding company, it engaged in global investment management, investment banking, securities, and other financial services. An unfortunate series of scandals had put its good reputation in a downward spiral. Goldman engaged in a series of scandals from the collapsed of AIG, ABACUS-AC1 synthetic CDO, and Facebook private investment. What ethical issues had Goldman Sachs disregarded which led to its loss of reputation dilemma? Goldman was accused
Goldman Sachs & Co. and Fabrice Tourre, 2010) According to SEC complaint 10 CV 3229, “the involvement of Paulson & Co. in structuring the CDO and its hand selection was never disclosed to investors. The materials were misleading investors that the CDO was entirely selected by an independent party.” (Securities and Exchange Commission v. Goldman Sachs & Co. and Fabrice Tourre, 2010) Goldman failed to fulfill the fiduciary duty to its clients. In addition, it violated the CFA standard two of market manipulation, “by engaged in practices that distort prices or artificially inflate trading volume with the intent to mislead market participants.” (Standards of practice handbook, 2014, Chapter 2) Furthermore, Goldman places its interest before its clients by serving the seller Paulson & Co. and buyer IKB in the same deal. Goldman decided not to disclose the information that Paulson shorting the Abacus to IKB because of its long business relationship history. This is clearly a case of conflicts of interest that violated CFA standard four. How can Goldman explain its activities to the public, media, member of congress, to the SEC, and to its clients when its activities were not transparent?
In Facebook private investment offering deal, Goldman structured the deal to get around SEC rules that impose disclosure requirements on corporations with more than 500-shareholders. However, SEC reaction to the deal forced Goldman to abandon the U.S. offering. Goldman handpicked clients for the Facebook private investment deal so this begs the question, how can Goldman’s clients get a fair deal. In addition, Goldman violated the standard three on “duties to clients and prospective clients on fair dealing” (Standards of practice handbook, 2014, Chapter 3). Its action discriminated U.S. clients in favor of non-U.S. clients. According to fair dealing, Goldman unfairly treated U.S. clients since they were on the same service level agreement. Furthermore, Goldman also violated the standard one of “professionalism on knowledge of the law” (Standards of practice handbook, 2014, Chapter 1). Goldman clearly understood the shareholder limitation of private market investment nevertheless it was planning to create a special purpose vehicle to bypass that rule by pooling clients’ investments as one. The complaints from Facebook’s deal were not as severe as those involving in Abacus case nevertheless its reputation too