Goldman and Sachs

Faculty Use Only

LoganD MGT7109-3

The problem to be investigated is did Goldman and Sachs engage in shady trading transactions and were these transactions done in the best interest of their clients? Were Goldman and Sachs guilty of not disclosing the trade strategy to investors through their numerous practices of investment tools which they were using?

1. Go back through the case and make a list of each action or practice that could be called a gray area.

- In the 1920’s the layered investment strategy was created by Goldman. He created a company and purchased 90 percent of the company’s shares which would seem to be doing very well to the outside investors, the shares would then sell to the public for an additional 10 percent. This area is gray because Goldman was deceiving the public and driving up the price of the stock. Example: $100 per share-Goldman buys 90%: public buys 10 %.( Jennings, 2010, p.73-74)

- In 1990 Goldman became the Wall Street giant on taking the Internet companies public: this was done by “selling air” Goldman underwrote 47 companies which some may not have shown any profits. “The standard underwriting practice of requiring that a company show three years of profitability before being taken public was no longer enforced.” (Jennings, 2010, p.75) This makes Goldman’s practice of underwriting companies gray because some of the companies did not have any profits but he continued writing.

- According to Jennings Laddering known as the “insider scam by the underwriters” because Goldman knew that the initial price of shares were “guaranteed to rise” therefore providing Goldman a profit. (Jennings, 2010, p.75) The fact that the investors knew the prices of shares were low but mandated the clients to purchase a certain number of those shares. This makes laddering another gray area; Goldman did not change the actions of the investors or their decisions in the 1920’s but continued to benefit regardless that...