Goldman Sachs has been in the eye of a storm over the firm’s allegedly unethical conduct before and during the financial crisis. Lawmakers have criticized the firm for selling poor quality mortgage based products to unsuspecting buyers. As the housing segment took a nosedive during the recession, more and more borrowers defaulted on their mortgages, leaving investors with huge losses.
Following the SEC case against it, the firm has admitted that more lawsuits may be piling up soon, initiated by investors and regulatory bodies. The admission came even as the firm showed zero trading losses in the first quarter, which has never been achieved before by Goldman. The firm’s trading revenues crossed the $100 million mark on more than 30 days during the period concerned. The company’s fortunes are clearly on the rise again. There was huge public outcry when details of the huge bonus payments made to top management came to light a few months back.
Goldman has chosen to maintain a subdued stance. Spokespersons have given indications that this good showing may be short lived as existing and future litigations will certainly leave a mark on the overall performance of the company. Increased scrutiny, which will almost certainly accompany any new cases, will also have its part to play in determining the future prospects of the company. The company has also admitted that these lawsuits and the resultant enquiries could change how it operates.
Goldman has been accused of hiding important facts from its own customers and investors. The fact that John Paulson, the hedge fund manager who identified the majority of the securities to be included in a Goldman product had a personal stake in the performance of the portfolio was not known until it was too late. Paulson was shorting the deal, betting on its poor performance.
Company insiders defended their stand by saying that investors were free to view and assess the quality of the portfolio as all the underlying instruments were revealed. The firm also claimed that the investment was designed for savvy investors who could have gauged the portfolio’s strength on their own.
Goldman shares had dipped after the SEC made formal accusations and launched its investigation. But the stock price has recovered since then. The cautious approach towards future litigations may go down well with investors, and the company has already set aside a fund to deal with any legal battles.