Ethics

Q.1

* The first grey area in Case 2.11 is illustrated by Goldman artificially driving up the price of its own investments by creating companies and buying up to 90% of the shares thereby creating demand for the shares and driving the price up. Goldman then continued to buy shares on the secondary market which would push the share price up further.

* Goldman’s practice in the 1990’s to relax its standard underwriting practice requiring a company to show three years of profitability before being taken public.

* Goldman creating manufactured demand for its investments through laddering which involves an agreement between Goldman and it’s best clients for the allocation of a certain portion of the IPO at a pre-established price, however under the agreement these clients had to agree to purchase a certain number of shares later at $10-15 higher, thereby creating an artificial increase in the share price of the investment.

* Goldman’s decision in 2007 to shift from investment in CDO’s to short sales, which effectively bet against the mortgage-backed securities that it was selling to clients.

* Goldman’s practice of holding trading huddles whereby analysts and traders met to determine short and long term investments on particular shares. As these analysts were not equity research analysts they were not subject to SEC rules. The conclusions of the huddles were then shared with Goldman’s traders and a selected few of Goldman’s thousands of clients. The conclusions were often different from Goldman’s analysys reports and recommendations that were issued publicly.

* The auction-rate markets and investment firms practice of creating demand for these markets by bidding up the values of these investments and Goldman’s decision to leave its largest investors holding these unsellable securities after they pulled out of the auction-rate market.

* Goldman’s admission in January 2010 that it had often made recommendations to clients that it had...