Leading investment banking and investment management firm, Goldman Sachs is continuing to bear the brunt of bad publicity and suspicion for its alleged unethical business practices.
Investigators have made it clear that excessive attention to the profits of the company rather than to investor welfare led the firm into promoting unreliable financial products. Analysts believe that these products contributed to the financial crisis, which in turn set off the economic downturn. These allegations have led to investigations and a review of the company’s actions by several bodies, including the SEC.
Sub prime mortgages
An earlier investigation in Massachusetts, which studied the role of Wall Street banks in hastening the housing crisis, also found that Goldman Sachs played a major role in it. The firm was accused of selling poor quality mortgage backed securities to unwary investors. This undermined the stability of the housing market, investigators stated. Goldman Sachs had agreed to a $60 million payout to end the investigations although company insiders continued to deny that any inappropriate dealings had taken place.
The investigations looked into Wall Street’s complicity in setting in motion a series of unsound financial moves, which created the conditions leading to the recession. Considering that Goldman Sachs was the most active facilitator of such non viable sub-prime loans, the company was accused of encouraging investment in instruments that were clearly too risky.
Misappropriation of pension funds
Other allegations leveled against the company by major investors like pension funds include the pay out of disproportionate bonuses to its top brass. Critics claim that tax payer money funded these bonuses.
Although the company has called these charges baseless, the protestors are not convinced that beneficiaries deserved these huge financial incentives by way of performance alone. Many investigations have been initiated by other parties as well for the company’s single-minded attention to profits rather than investor and customer interests.
While Goldman Sachs earlier chose to opt for a settlement of sorts to end the Massachusetts investigation, the company has announced that it will legally battle the SEC as their charges cast doubts on the company’s commitment to its customers.
It is also believed that unless the company defends itself against this allegation, it could leave itself open to many other similar lawsuits. Goldman Sachs clearly needs a serious damage control strategy right now, but it would also be interesting to see how the SEC plans to tackle the company’s financial muscle.