Goldman Sachs in Eye of Wall Street Storm

by John M. Curtis
(310) 204-8700

Copyright August 23, 2011
All Rights Reserved.                                         

      Hiring Wall Street white-collar crime defense attorney Reid Weingarten, Goldman Sachs CEO 56-year-old Lloyd Blankfein attempted to preempt a Justice Department probe into shady dealing at the nation’s biggest investment bank.  Since the 2007-08 financial meltdown, Goldman Sachs seems to be named or implicated in many of the financial scandals that took down the U.S. economy.  During the height of the financial meltdown, American International Group [AIG] 65-year-old CEO Edward M. Liddy also sat on Blankfein’s board.  When AIG went broke unable to pay insurance reimbursements on collateralized debt obligations, it received $185 billion in government bailouts.  Liddy handed Goldman Sachs’ Lloyd Blankfein $14 billion without any questions.  Apart from conflicts-of-interest like this, the Justice Dept. is going after Goldman Sachs for more egregious abuses.

              Retaining Weingarten shows that Blankfein is beginning to sweat.  News of Blankfein’s hire prompted Goldman’s stock to plummet, down 30% from mid-July, and a full 6% at $105 today on news of Weingarten’s hire.  With Goldman’s shenanigans, it’s always the tip of the iceberg, not knowing which clients it sold risky derivative investments, one of the main causes of the 2007-08 financial collapse.  It’s beyond ironic that only 12 years after former President Bill Clinton tossed out the 1933 Depression Era Glass Steagall Act that banned bank holding companies from risky stock market investing the market crashed.  After the Crash of ’29, it was obvious to almost everyone that bank depository institutions shouldn’t play the stock market with depositors’ cash.  When Clinton’s Bull Market raged in 1996-1999, banks wanted to jump on the profits, pressuring Congress to end Glass Steagall.

            When Clinton signed into law Gramm-Leach-Bliley Nov. 12, 1999, it opened the door to today’s banking crisis.  Explaining the latest stock market meltdown isn’t rocket science.  Years of wheeling-and-dealing with risky derivative investments eventually popped the housing bubble.  Senate ‘s Permanent Subcommittee on Investigations [PSI] is now looking into Goldman’s fraud of, on the one hand, pushing collateralized debt obligations based on sub-prime mortgages and simultaneously shorting derivatives while they sold them vigorously to clients.  “As is common with such situations, Mr. Blankfein and other individuals who were expected to be interviewed in connection with the Justice Department’s inquiry into certain matters raised in the PSI report hired counsel at the outset,” said Goldman Sachs in a prepared statement.  Earlier this month, Goldman lowered its estimate of litigation costs from $2.7 billion to $2 billion  

            After Blankfein’s decision to hire Weingarten, Goldman may wish to reconsider its expected litigation costs.  “Why do you bring in someone like that?” said an unnamed Justice Dept. source not authorized to speak publicly.  “It says something:  That they’re taking the situation seriously,” despite the fact that Blankfein has not yet been charged criminally.  Given today’s labile stock market, a possible indictment of a company’s CEO could have devastating effects on share prices.  “This is the last thing that Goldman Sachs or any institution in the sector needed,” said Peter Kenny, managing director of Knight Capital in Jersey City, NJ.  It wasn’t that long ago that Goldman Sachs paid $550 million in Securities and Exchange Commission fines for fraud charges brought by the New York State Attorney General.  Nothing is worst for a company’s stock than facing a federal probe.

            Weingarten’s client list is like veritable who’s who of corporate white-collar criminals, including no-defunct WorldCom CEO Bernie Ebbers and former Enron accounting officer Richard Causey.  Weingarten recently got former GlaxoSmithCline lawyer Lauren Stevens off for perjury and obstruction of justice.  “I’m used to these monstrously difficult cases where everybody hates my clients,” Weintargen told AmericanLawyer.com..  He described Stevens as a “beloved figure,” attesting to differing perceptions of victims of corporate crime.  Putting Blankfein in the same company as Bernie Ebbers and Richard Causey presents problems for Goldman Sachs going forward.  Without showing a clean slate, Goldman Sachs’ share prices are bound to keep slumping.  Former U.S. Attorney and New York State Atty. Gen. Eliot Spitzer used to warn CEOs about how indictments wreck corporate brands.

            Goldman Sachs faces some daunting challenges going forward in terms of salvaging its credibility.  Most Wall Street outsiders perceive the 141-year-old investment bank giant as riddled with manipulation and fraud.  When the CEO retains criminal defense counsel, it does very little to reassure investors.  There’s little to cheer about at Goldman Sachs when the PSI report displays inconsistencies in testimony and e-mails between Blankfein and other company executives. U.S. Atty. Gen. Eric H. Holder Jr. and Securities and Exchange Commission Mary L. Shapiro want to find out whether Goldman Sachs defrauded investors before and after the 2007-08 financial crisis.  If they’re in anyway serious, they need to look at Goldman Sachs' current role in programmed trading, especially short selling various stocks and commodities in today’s shaky economic environment.

John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com.and author of Dodging the Bullet and Operation Charisma.

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