"When the ducks quack, feed them," the Wallstreet saying goes. When investors clamored to participate in the mortgage banking excesses, banks like Goldman Sachs promoted the sale of overvalued products that eventually were doomed to fail.
However the Securities and Exchange Commission (SEC) and the Federal Bureau of Investigation (FBI) have been catching up with the banking giant's misdeeds. In April 2010, the SEC filed its first action against a Wall Street agreement that helped investors make money on the collapse of the housing market.
In July 2010, the government settled with Goldman Sachs, which agreed to pay over half a billion dollars in penalties. The fine was the largest penalty ever assessed against any investment bank or other Wall Street firm in the history of the SEC.
The SEC lawsuit accused Goldman Sachs of creating and selling mortgage investments that were secretly intended to fail. Two members of Goldman Sachs' structured products group made a profit of $4 billion by anticipating a collapse in the sub-prime market and short selling mortgage-related securities.
Problems Goldman Sachs has faced include:
- Criticism for being involved in the 2010 European sovereign debt crisis.
- A letter of resignation by Greg Smith that was printed in the March 2012 New York Times attacking the company's leaders for a "toxic and destructive" environment where the best interests of the client are sidelined.
- A 2008 Los Angeles Times report that the company, which earned $25 million from underwriting California bonds, advised clients to short sell these bonds.
- A 1986 conviction of two Goldman Sachs employees for insider trading.
- The April 2010 insider trading case against Rajat Gupta, director of Goldman.
- Accusations that the company inflated financial earnings reports in December 2008/January 2009. Gupta was already serving time in prison for previous fraudulent conduct.
- Questions about the 2008 AIG bail-out and the bank's relationship with AIG
- Allegations about ties to Goldman Sachs by former chairman of the Federal Reserve Bank in January 2008.
- Accusations surrounding a $60 million settlement to end an investigation by the Massachusetts attorney general's office seeking information on whether Goldman Sachs helped to promote unfair home loans in the state.
- Accusations in a 2009 New York Times article that Goldman Sachs created a complicated product called collateralized debt obligations, sold it to investors, then bet short against them.
- Criticism that the company contributed to the 2007-2008 world food price crisis.
Goldman Sachs: HistoryThe Bank was founded in New York in 1869 by the German-born Marcus Goldman. His son-in-law, Samuel Sachs joined the company in 1882. Two others joined the firm in 1885, Goldman's son and another son-in-law, at which time the firm took on its current name.
It was a pioneer in the use of commercial paper for entrepreneurs and was invited to join the New York Stock Exchange in 1896. In the stock market crash a fund started by Goldman Sachs failed and the company's reputation suffered. Over the coming years it re-established its reputation by investing for the long term as opposed to short-term gains.
In 1999, the firm decided to go public, but offered only a small part of the company to the public, continuing to hold back 48 percent for its partners.
In 2007, the firm became entangled in the sub-prime home lending crisis.
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