TAILIEUCHUNG - THE INVESTMENT BANK JOB: The U.S. Securities and Exchange Commission v. Goldman Sachs

In my prior works (Altman 1992, 1996) on the distressed and defaulted debt market, estimates of the size of the market were as high as $300 billion (face value) and $200 billion (market value) at the start of 1990. Since that date, the size of the market has diminished consistently. This data is shown in Exhibit 1 and includes public and private debt estimates. The private debt total was estimated by applying a multiplier of as high as three times the public debt in 1990 and as low as in 1992. Both of these estimates are based on empirical observations of a. | INSTITUTE FOR ETHICS at Duke U niversity Institutions in Crisis THE INVESTMENT BANK JOB The . Securities and Exchange Commission v. Goldman Sachs Andrew Schrieber On April 16 2010 the Securities and Exchange Commission SEC charged Goldman Sachs and Vice President Fabrice Tourre with defrauding investment client ACA Management LLC ACA through the preparation and marketing of a financial product linked to subprime or second-rate mortgages. This financial instrument entitled Abacus 2007-AC1 Abacus had been created specifically for an institutional client John Paulson the manager of the hedge fund Paulson Company. When Goldman traders met with ACA they presented an array of possible mortgage investments from which ACA could select. As was made apparent in the subsequent investigation however during its interactions with ACA Goldman deliberately misled the company to believe that Paulson Company was also investing in Abacus. In actuality Paulson Company was making the opposite investment wager with the expectation that Abacus would lose money. Paulson s firm with Goldman s assistance was betting that the housing market would collapse. Coming on the heels of the financial crisis this behavior epitomized to many the erosion of integrity within the financial industry that had occurred following the regulatory reforms in the 1980s and late 1990s. Observers point to a number of changes over those decades that contributed to a fundamental and negative shift in internal practices and organizational culture. These changes include a shift from the partnership model toward the publicly traded bank and a loosening of governmental regulatory reins. This case study examines the evolution of the modern financial industry and the organizational and structural shifts within Wall Street banks that led to the case against Goldman Sachs. The case and teaching notes for The Investment Bank Job The . Securities and Exchange Commission v. Goldman Sachs by Andrew Schreiber was .

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