Goldman Busted Again
Goldman Sachs Group Inc. research analyst Marc Irizarry’s published rating on mutual-fund manager Janus Capital Group Inc. was a lackluster “neutral” in early April 2008. But at an internal meeting that month, the analyst told dozens of Goldman’s traders the stock was likely to head higher, company documents show.
The next day, research-department employees at Goldman called about 50 favored clients of the big securities firm with the same tip, including hedge-fund companies Citadel Investment Group and SAC Capital Advisors, the documents indicate. Readers of Mr. Irizarry’s research didn’t find out he was bullish until his written report was issued six days later, after Janus shares had jumped 5.8%.
via Goldman Sachs Trading Tips Reward Big Clients – WSJ.com.
More good news for Goldman Sachs, which now has the WSJ taking a bite out of its posterior. Here it is reported that Goldman was handing out tips to favored clients that one of its analysts was about to publish favorable ratings of a mutual fund, giving those clients the opportunity to buy in six days before the analyst’s rating was published.
This is a practice that’s apparently been going on forever. You give an investment bank enough business, they will throw bon mots like this your way. Here’s Jim Cramer, CNBC’s rumor-poodle who is formerly of Goldman and then of course a hedge fund manager in his own right, describing how his wife and partner Karen Backfisch taught him to butter up investment banks with commissions:
How she did it was by gaming Wall Street, trying to anticipate moves of analysts before they were made, and placing big bets on the direction that analysts were going to go. That way, she said, you always had an edge, you never owned anything idly, and you always had an exit strategy…
Karen explained to me that the analyst game was a game of sponsorship. Analysts like to get behind stocks and bull them. You have to get in on the ground floor when they start their sponsorship campaign. If Merrill is the sponsor of a stock, it could be good for 5 points. If Goldman sponsored something, it could be good for 10. You want to buy something and flip it—sell it immediately—into the sponsorship. That’s the only sure thing on Wall Street.
When I asked her how we could find out about all of these wonderful things when I was jut a little hedge fund manager, she said one word: ‘commish.’… Commissions, she explained, determined what you are told, what you will know, and how much you can find out. If you do a massive amount of commission business, analysts will return your calls, brokers will work for you, and you will get plenty of ideas to make money, on both a short- and long-term basis… Commissions greased everything.
This comes on the same day that the New York Times ran a big story on Sergey Aleynikov, the guy who stole Goldman’s high-frequency trading program.The story is about the use of technology that banks use to make trades in fractions of milliseconds, taking advantage of tiny price discrepancies in the market.
Both of these stories have a common theme. The people who are actively innovating on Wall Street are all involved in the business of gaming the system to take advantage of short-term price swings. The people who invest money for the long-term and stick with their investments are punished in this environment.
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And this is the system we spent a trillion dollars of tax money to save?!? A system of crooks, by crooks, and for crooks! I don’t know what it will take for people to realize that the whole system needs to be rebooted and replaced with something else. With what? Who knows. It’s getting to the point where I no longer care – but it would be interesting to watch the rebooting!
I read the RS piece, Matt. Excellent work! You just keep getting better!
[...] Eric Holder is going to appoint a special prosecutor to examine whether Bush administration interrogations conducted by the CIA were legal. Good for him. But the real question is whether the prosecutor will have the authority to examine not only (or even primarily) the front-line interrogators, but whether the prosecutor is free to climb the ladder of authority should his investigation warrant it, even if the climb is to the highest levels in the Bush administration. The leadership clearly set the tone and directed a strained legal interpretation that was the basis of the programs. Share this post: [...]
There you go being anti-semitic again.
http://www.thedailybeast.com/blogs-and-stories/2009-08-20/goldman-execs-blame-anti-semitism/
[...] Matt Taibbi offers his pithy take on the story. Share this [...]
Off topic, but I just saw that Hot, Flat & Crowded is on Obama’s vacation reading list.
I figure this would make you happy!
You should pull some strings and get him a subscription to RS.
Just wanted to point out a typo – you accidentally wrote ‘happy’ instead of ’shocked/disgusted/very afraid.’
In response to another comment. See in context »Matt: Have you looked into how DOJ has handled the Aleynikov prosecution? It is fascinating.
Goldman Sachs called the FBI at 3 a.m. to report that Aleynikov had stolen some computer code. Within a day, the FBI was surveilling Aleynikov’s house. Within 48 hours of the call, the FBI arrested Aleynikov.
That’s some access, isn’t it?
It gets even more interesting.
The federal prosecutor, Joseph Facciponti, tried to have Aleynikov kept in jail without bail. It is highly unusual for anyone other than a murderer or mob boss to be denied bail. I’ve never heard of an ex-employee accused of theft of trade secures being denied bail.
At the bail hearing, Facciponti told the judge that the software Aleynikov allegedly stole “could [be] use[d] it to manipulate markets in unfair ways.” If that was true, why hasn’t Facciponti opened an investigation into Goldman Sachs? It was their code, after all.
Facciponti also told the court that Goldman would lose “millions upon millions of dollars” if Aleynikov was released. That statement was directly contradicted by Goldman’s CFO, David Viniar, who commented a few days after the arrest: “We still have all of the code. It is not like the code had been lost to Goldman Sachs. And even if it had been, it is a small piece of our business.”
Three a.m. calls to the FBI. Arrests within 48 hours. Lies in open court.
It’d be quite an understatement to say that Goldman Sachs has friends in high places.
No one cares.
Even supposed liberal, justice minded bloggers on this site fail to see why a business advantage that makes people money could possibly immoral or illegal. Business writers could care even less, gaming the system is just smart business. The idea that it is the government’s fault for not regulating negates any strict interpretation of actual law. There is no penalty for breaking the law or flat out lying today. These are vices that like gambling has moved to the virtue column, they are traits of smart and tough Capitalists who prove time and again that they are above those laws for regular people.
The result of all this universal lazze faire attitude to our laws is that the foundation of our economic system will remain eroded and it will all come crashing down again.
Maybe Grover Norquist’s small-government-drowned-in-a-bathtub dream has come true. Maybe the government no longer has the size, the means, or the resources to handle investigations or prosecutions of this magnitude. Maybe the criminal system is so big, so influential, so overpowering and established there’s just no getting it under control now.
In response to another comment. See in context »btw, ultimi barbororum took lord blankfein’s cock out of his mouth long enough to say a bunch of nice stuff about goldman’s. “the squid” (i.e. your article) is heavily referenced.
http://ultimibarbarorum.com/2009/08/24/defending-the-squid/
also, thank you for writing. you are the fucking man.
Now that you broke the story weeks ago and the WSJ is now snooping around GS too, Finra and the SEC now say they will look into the matter. Why does it take tons of national publicity to get the regulators motivated to even look into what goes on at GS. Thank you for bull dogging the story so the SEC and Finra feel they must do something now. By the way, how is that lawsuit GS threatened you with working out for them?
Have you seen Larry Flynt’s call to action?
http://www.huffingtonpost.com/larry-flynt/common-sense-2009_b_264706.html
He’s calling for strong restrictions on lobbying, but, as Matt has pointed out, that won’t be enough. As long as the banks own the media, the American public will never hear the truth loudly enough to drown out the siren song of “It could be me”.
[...] Following, The Wall Street Journal revelations yesterday that Goldman gives its best clients analysts’ tips in advance, Matt Taibbi gets stuck in. Taibbi, famous for, amongst other things, his argument about Goldman being a Vampire Squid on the U.S. economy, twists the knife again on his blog: [...]
I got my latest issue of Time this weekend and lo and behold a spin article by Willian D. Cohan on Goldman Sachs and Blankfein. Matt, you would be glad to know that your article according to Time “has been particularly troubling to him”. I wonder if it is troubling because he is really a nice guy and GS traders are angels, or is it more that he and the rest of the crooks got caught with their hands in the cookie jar, and there is a spotlight on them and their brand.
One pet peeve I have is how mainstream media state how much money Goldman Sachs has “made”. Proper spoken or written English would use more appropriate words like “stole”, “extorted”, or maybe even a more politically correct word like “obtained”, “acquired”. They did not “make” this wealth. Someone else added value, they are just borrowing it… permanently.
Wait Matt, you are telling me it is not just skill and being the smartest people in the room that led to a 97% win percentage in Q2 2009? I’m shocked. Just shocked.
http://www.fundmymutualfund.com/2009/08/goldman-sachs-q2-winning-percentage-97.html
[...] Shared Goldman Busted Again [...]
Speaking of Goldman, David Fry wrote today on seekingalpha.com that the CFTC Commissar Gensler(an old Goldman employee once again) is taking GS’s side vs the individual investor(surprise,surprise)in the commodity markets, especially gold and silver. Many individuals are now calling for investors to take possession of gold and silver vs using the exchange because the Commissar is favoring his old firm GS over the interests of the individual. I wanted to know if you would comment on this side of Goldman in your next post.
If only there were a pattern:
http://www.deepcapture.com/sac-capital-gets-tips-from-goldman-if-only-there-were-a-pattern/
Matt, have you read any of Deep Capture’s work? They’ve been talking about Wall Street corruption and regulatory capture for years.
I have enjoyed Matt Taibbi for a couple of years now and because I watch for his posts, I just found this GREAT web site. Thanks so much!