# Goldman Sachs controversies

Goldman Sachs, an investment bank, has been the subject of controversies. The company has been criticized for lack of ethical standards, working with dictatorial regimes, close relationships with the U.S. federal government via a "revolving door" of former employees, and driving up prices of commodities through futures speculation. It has also been criticized by its employees for 100-hour work weeks, high levels of employee dissatisfaction among first-year analysts, abusive treatment by superiors, a lack of mental health resources, and extremely high levels of stress in the workplace leading to physical discomfort.

## Role in the financial crisis of 2007–2008

During the 2007–2008 financial crisis, Goldman was criticized for allegedly misleading its investors and profiting from the collapse of the mortgage market. This led to investigations from the United States Congress, the United States Department of Justice, and a lawsuit from the U.S. Securities and Exchange Commission that resulted in Goldman paying a $550 million settlement in July 2010. Goldman Sachs denied wrongdoing and stated that its customers were aware of its bets against the mortgage-related security products it was selling to them, and that it only used those bets to hedge against losses,
Goldman Sachs was "excoriated by the press and the public" according to journalists Bethany McLean and Joe Nocera.—this despite the non-retail nature of its business that would normally have kept it out of the public eye. In a story in Rolling Stone published in July 2009, Matt Taibbi characterized Goldman Sachs as a "great vampire squid" sucking money instead of blood, allegedly engineering "every major market manipulation since the Great Depression ... from tech stocks to high gas prices".
While all the investment banks were scolded by congressional investigations, Goldman Sachs was subject to "a solo hearing in front of the Senate Permanent Subcommittee on Investigations" and a critical report. In 2011, a Senate panel released a report accusing Goldman Sachs of misleading clients and engaging in conflicts of interest. On April 14, 2011, the United States Senate's Permanent Subcommittee on Investigations released a 635-page report entitled Wall Street and the Financial Crisis: Anatomy of a Financial Collapse which described some of the causes of the financial crisis. The report alleged that Goldman Sachs may have misled investors and profited from the collapse of the mortgage market at their expense. The Chairman of the Subcommittee referred the report to the United States Department Of Justice to determine whether Goldman executives had broken the law, and two months later the Manhattan district attorney subpoenaed Goldman for relevant information on possible securities fraud, but on August 9, 2012, the Justice Department announced it had decided not to file charges against Goldman Sachs or its employees for trades made during the crisis.

### Bonuses paid to employees in 2009 despite financial crisis

In June 2009, after the firm repaid the TARP investment from the U.S. Treasury, Goldman made some of the largest bonus payments in its history due to its strong financial performance, setting aside a record $11.4 billion for bonus payments. Andrew Cuomo, then New York Attorney General, questioned Goldman's decision to pay 953 employees bonuses of at least $1 million each after it received TARP funds in 2008. That same period, however, CEO Lloyd Blankfein and 6 other senior executives opted to forgo bonuses, stating they believed it was the right thing to do because they were part of the industry that caused economic distress.

### Benefits from the government bailout of AIG

American International Group received $180 billion in government loans during the financial crisis, much of which was used to pay counterparties under credit default swaps purchased from AIG. Goldman Sachs received $12.9 billion. However, due to the size and nature of the payouts, there was considerable controversy in the media and amongst some politicians as to whether banks, including Goldman Sachs, should have been forced to take greater losses and should not have been paid in full via government loans to AIG. If the government let AIG default, according to money manager Michael Lewitt, "its collapse would be as close to an extinction-level event as the financial markets have seen since the Great Depression".

#### Firm's response to criticism of AIG payments

Goldman Sachs maintained that its net exposure to AIG was 'not material', and that the firm was protected by hedges (in the form of CDSs with other counterparties) and $7.5 billion of collateral, which would have protected the bank from incurring an economic loss in the event of an AIG bankruptcy or failure. The firm stated the cost of these hedges to be over $100 million. CFO David Viniar stated that profits related to AIG in the first quarter of 2009 "rounded to zero", and profits in December were not significant and that he was "mystified" by the interest the government and investors have shown in the bank's trading relationship with AIG. Speculation remains that Goldman's hedges against its AIG exposure would not have paid out if AIG was allowed to fail. According to a report by the United States Office of the Inspector General of TARP, if AIG had collapsed, it would have made it difficult for Goldman to liquidate its trading positions with AIG, even at discounts, and it also would have put pressure on other counterparties that "might have made it difficult for Goldman Sachs to collect on the credit protection it had purchased against an AIG default." Finally, the report said, an AIG default would have forced Goldman Sachs to bear the risk of declines in the value of billions of dollars in collateral debt obligations. Goldman argued that CDSs are marked to market (i.e. valued at their current market price) and their positions netted between counterparties daily. Thus, as the cost of insuring AIG's obligations against default rose substantially in the lead-up to its bailout, the sellers of the CDS contracts had to post more collateral to Goldman Sachs. The firm claims this meant its hedges were effective and the firm would have been protected against an AIG bankruptcy and the risk of knock-on defaults, had AIG been allowed to fail. However, in practice, the collateral would not protect fully against losses both because protection sellers would not be required to post collateral that covered the complete loss during a bankruptcy and because the value of the collateral would be highly uncertain following the repercussions of an AIG bankruptcy.

#### Possible benefits from attendance at September 15, 2008 meetings at the New York Federal Reserve

Although many have said there is no evidence to support the claim, some have argued that Goldman Sachs received preferential treatment from the government by participating in the crucial September meetings at the New York Fed, which decided AIG's fate. Much of this has stemmed from an inaccurate but often quoted article published in The New York Times. The article was later corrected to state that Blankfein, CEO of Goldman Sachs, was "one of the Wall Street chief executives at the meeting". Representatives from other firms were indeed present at the September AIG meetings. Furthermore, Goldman Sachs CFO David Viniar stated that CEO Blankfein had never "met" with US Treasury Secretary Henry Paulson to discuss AIG; however, they had frequent phone calls. Paulson was not present at the September meetings at the New York Fed. Morgan Stanley was hired by the Federal Reserve to advise on the AIG bailout. According to The New York Times, Paulson spoke with the CEO of Goldman Sachs two dozen times during the week of the bailout, though he obtained an ethics waiver before doing so. While it is common for regulators to be in contact with market participants to gather valuable industry intelligence, particularly in a crisis, Paulson spoke with Goldman's Blankfein more frequently than with other large banks. Federal officials say that although Paulson was involved in decisions to rescue A.I.G, it was the Federal Reserve that played the lead role in shaping and financing the A.I.G. bailout.

### $60 million settlement for Massachusetts subprime mortgages (2009)

On May 10, 2009, Goldman Sachs agreed to pay up to $60 million to end an investigation by the Massachusetts attorney general's office into whether the firm helped promote unfair home loans in the state, with the funds used to reduce the mortgage payments of 714 Massachusetts residents who had secured subprime mortgages funded by Goldman Sachs.

## Stock price manipulation

Goldman Sachs was charged for repeatedly issuing research reports with extremely inflated financial projections for Exodus Communications and Goldman Sachs was accused of giving Exodus its highest stock rating even though Goldman knew Exodus did not deserve such a rating.
On July 15, 2003, Goldman Sachs, Lehman Brothers and Morgan Stanley were sued for artificially inflating the stock price of RSL Communications by issuing untrue or materially misleading statements in research analyst reports, and paid $3,380,000 for settlement.
Goldman Sachs was accused of asking for kickback bribes from institutional clients who made large profits flipping stocks which Goldman had intentionally undervalued in initial public offerings it was underwriting during the dot-com bubble. Documents under seal in a decade-long lawsuit concerning eToys.com's initial public offering (IPO) in 1999 but released accidentally to The New York Times show that IPOs managed by Goldman were purposely underpriced to generate profits for clients of Goldman and that these clients were asked by Goldman to return some of the profits via increased business. The clients willingly complied with these demands because they understood it was necessary in order to participate in further such undervalued IPOs. Companies selling undervalued stock and their initial consumer stockholders were both defrauded by this practice.

### So-called 'naked short-selling' – Overstock.com

In 2015, Goldman settled with Overstock for $20 million for participating in abusive practices described as "creat[ing] fake lendable shares out of thin air" with the end of result of "organized counterfeiting of shares in the market"; crucial evidence of the Goldman's participation in these manipulative practices surfaced when Goldman's lawyer accidentally posted on PACER, the federal court online filing system, emails from a broker documenting his abuses.

## Use of offshore tax havens

A 2016 report by Public Interest Research Group stated that "Goldman Sachs reports having 987 subsidiaries in offshore tax havens, 537 of which are in the Cayman Islands, despite not operating a single legitimate office in that country, according to its own website. The group officially holds $28.6 billion offshore." The report also noted several other major U.S. banks and companies use the same tax-avoidance tactics.
In 2008, Goldman Sachs had an effective tax rate of only 3.8%, down from 34% the year before, and its tax liability decreased to $14 million in 2008, compared to $6 billion in 2007. Critics have argued that the reduction in Goldman Sachs's tax rate was achieved by shifting its earnings to subsidiaries in low or no-tax nations, such as the Cayman Islands.

## Involvement in the European sovereign debt crisis

Goldman was criticized for its involvement in the 2010 European debt crisis. In 2001, to avoid non-compliance with the Maastricht Treaty, Goldman arranged a secret loan of €2.8 billion for Greece disguised as an off-the-books "cross-currency swap", hiding 2% of Greece's national debt. Goldman received a fee of €600 million for the complicated transaction. In September 2009, Goldman Sachs, among others, created a special credit default swap (CDS) index to cover the high risk of Greece's national debt. The interest-rates of Greek national bonds soared, leading the Greek economy very close to bankruptcy in 2010 and 2011.
Many European leaders with roles in the crisis had ties to Goldman Sachs. Lucas Papademos, Greece's former prime minister, ran the Central Bank of Greece at the time of the controversial derivatives deals with Goldman Sachs that enabled Greece to hide the size of its debt. Petros Christodoulou, General Manager of the Greek Public Debt Management Agency was a former employee of Goldman Sachs. Mario Monti, Italy's former prime minister and finance minister, who headed the new government that took over after Berlusconi's resignation, was an international adviser to Goldman Sachs. Otmar Issing, former board member of the Bundesbank and the Executive Board of the European Bank also advised Goldman Sachs. Mario Draghi, then head of the European Central Bank, was the former managing director of Goldman Sachs International. António Borges, Head of the European Department of the International Monetary Fund in 2010–2011 and responsible for most of enterprise privatizations in Portugal since 2011, was the former Vice Chairman of Goldman Sachs International. Carlos Moedas, a former Goldman Sachs employee, was the Secretary of State to the Prime Minister of Portugal and Director of ESAME, the agency created to monitor and control the implementation of the structural reforms agreed by the government of Portugal and the troika composed of the European Commission, the European Central Bank and the International Monetary Fund. Peter Sutherland, former Attorney General of Ireland was a non-executive director of Goldman Sachs International.

## Employee's views

Although the allegations against Goldman were later discovered to be lacking evidence, in March 2012, Greg Smith, then-head of Goldman Sachs U.S. equity derivatives sales business in Europe, the Middle East and Africa (EMEA), resigned his position via an op-ed in The New York Times criticizing the company and its executives and wrote a book titled Why I left Goldman Sachs. Almost all the claims made by Smith turned out to be lacking in evidence and Smith was alleged to be a con artist by The Observer. However, The New York Times never issued a retraction or admitted to any error in judgment in initially publishing Smith's op-ed.
In 2014, a book by former Goldman portfolio manager Steven George Mandis was published entitled What Happened to Goldman Sachs: An Insider's Story of Organizational Drift and Its Unintended Consequences. Mandis also wrote and defended a PhD dissertation about Goldman at Columbia University. Mandis left in 2004 after working for the firm for 12 years. According to Mandis, there was an "organizational drift" in the company's evolution and Goldman came under a variety of pressures that resulted in slow, incremental changes to its culture and business practices. Those changes included becoming a public company, which limited the personal risk of Goldman executives and shifted it to shareholders and put pressure on the company to grow, leading to conflicts of interest.
In 2010, Cristina Chen-Oster and Shanna Orlich, two former female employees filed a lawsuit against Goldman Sachs for gender discrimination, claiming that the firm fostered an "uncorrected culture of sexual harassment and assault" causing women to either be "sexualized or ignored". The suit cited both cultural and pay discrimination including frequent client trips to strip clubs, client golf outings that excluded female employees, and the fact that female vice presidents made 21% less than their male counterparts.

## Advice to short California bonds underwritten by the firm

On November 11, 2008, the Los Angeles Times reported that Goldman Sachs had both earned $25 million from underwriting California bonds, and advised other clients to short those bonds. While some journalists criticized the contradictory actions, others pointed out that the opposite investment decisions undertaken by the underwriting side and the trading side of the bank were normal and in line with regulations regarding Chinese walls, and in fact critics had demanded increased independence between underwriting and trading.

## Personnel "revolving-door" with US government

During 2008 Goldman Sachs received criticism for an apparent revolving door relationship, in which its employees and consultants have moved in and out of high level U.S. Government positions, creating the potential for conflicts of interest. The large number of former Goldman Sachs employees in the US government has been jokingly referred to "Government Sachs". Former Treasury Secretary Paulson is a former CEO of Goldman Sachs. Additional controversy attended the selection of former Goldman Sachs lobbyist Mark A. Patterson as chief of staff to Treasury Secretary Timothy Geithner, despite President Barack Obama's campaign promise that he would limit the influence of lobbyists in his administration. In February 2011, the Washington Examiner reported that Goldman Sachs was "the company from which Obama raised the most money in 2008" and that its "CEO Lloyd Blankfein has visited the White House 10 times."

### Former New York Fed Chairman's ties to the firm

Stephen Friedman, a former director of Goldman Sachs, was named Chairman of the Federal Reserve Bank of New York in January 2008. Although he had retired from Goldman in 1994, Friedman continued to own stock in the firm. In September 2008, Goldman converted from a securities firm to a bank holding company, making it regulated by the Fed and not the SEC. When it became apparent that Timothy Geithner, then president of the New York Fed, would leave his role there to become Treasury Secretary, Friedman was granted a temporary one-year waiver of a rule that forbids "class C" directors of the Fed from direct interest with those it regulates. Friedman agreed to remain on the board until the end of 2009 to provide continuity in the wake of the turmoil caused by the bankruptcy of Lehman Brothers. Had the waiver not been granted, the New York Fed would have lost both its president and its chairman. This would have been highly disruptive for the New York Fed's role in the capital markets. Friedman later said he agreed to stay on the NY Fed board out of a sense of public duty, but that his decision was "being mischaracterized as improper".
Media reports in May 2009 concerning Friedman's involvement with Goldman, and in particular, his purchase of the firm's stock when it traded at historical lows in the fourth quarter of 2008, fueled controversy and criticism over what was seen as a conflict of interest in Friedman's new role as supervisor and regulator to Goldman Sachs. These events prompted his resignation on May 7, 2009. Although Friedman's purchases of Goldman stock did not violate any Fed rule, statute, or policy, he said that the Fed did not need this distraction. He also stated his purchases, made while approval of a waiver was pending, were motivated by a desire to demonstrate confidence in the company during a time of market distress.

## Insider trading cases

In 1986, Goldman Sachs investment banker David Brown pleaded guilty to charges of passing inside information on a takeover deal that eventually was provided to Ivan Boesky. In 1989, Robert M. Freeman, who was a senior Partner, who was the Head of Risk Arbitrage, and who was a protégé of Robert Rubin, pleaded guilty to insider trading, for his own account and for the firm's account.

### Rajat Gupta insider trading case

In April 2010, Goldman director Rajat Gupta was named in an insider-trading case after allegedly informing Raj Rajaratnam of Galleon Group about the $5 billion Berkshire Hathaway investment in Goldman during the 2007–2008 financial crisis. Gupta had told Goldman the month before his involvement became public that he wouldn't seek re-election as a director. The United States Securities and Exchange Commission (SEC) announced civil charges against Gupta covering the Berkshire investment as well as for providing confidential quarterly earnings information from Goldman and Procter & Gamble, on which Gupta served as a member of the board of directors. Gupta was an investor in some of the Galleon hedge funds and he had other business interests with Rajaratnam. Rajaratnam used the information from Gupta to illegally profit in hedge fund trades; the information on Goldman made Rajaratnam's funds $17 million richer and the Procter & Gamble data created illegal profits of more than $570,000 for Galleon funds managed by others. Gupta denied the accusations. He was also a board member of AMR Corporation.
Gupta was convicted in June 2012 on insider trading charges stemming from the cases on four criminal felony counts of conspiracy and securities fraud. He was sentenced in October 2012 to two years in prison, an additional year on supervised release and ordered to pay $5 million (~$6.56 million in 2023) in fines. In January 2016, he was released from prison to serve his remaining sentence at home. Gupta challenged the conviction through the courts; it was upheld in 2019.

## Abacus mortgage-backed CDOs and $550 million settlement (2010)

Unlike many investors and investment banks, Goldman Sachs anticipated the subprime mortgage crisis. Some of its traders became "bearish" on the housing boom beginning in 2004 and developed mortgage-related securities, originally intended to protect Goldman from investment losses in the housing market. In late 2006, Goldman management changed the firm's overall stance on the mortgage market from positive to negative. As the market began its downturn, Goldman "created even more of these securities", no longer just hedging or satisfying investor orders but, according to business journalist Gretchen Morgenson, "enabling it to pocket huge profits" from the mortgage defaults and that Goldman "used the C.D.O.'s to place unusually large negative bets that were not mainly for hedging purposes". Authors Bethany McLean and Joe Nocera stated that "the firm's later insistence that it was merely a 'market maker' in these transactions—implying that it had no stake in the economic performance of the securities it was selling to clients—became less true over time."
The investments were called synthetic CDOs because unlike regular collateralized debt obligations, the principal and interest they paid out came not from mortgages or other loans, but from premiums to pay for insurance against mortgage defaults—the insurance known as "credit default swaps". Goldman and some other hedge funds held a "short" position in the securities, paying the premiums, while the investors (insurance companies, pension funds, etc.) receiving the premiums were the "long" position. The longs were responsible for paying the insurance "claim" to Goldman and any other shorts if the mortgages or other loans defaulted.
Through April 2007 Goldman issued over 20 CDOs in its "Abacus" series worth a total of $10.9 billion. All together Goldman packaged, sold, and shorted a total of 47 synthetic CDOs, with an aggregate face value of $66 billion between July 1, 2004 and May 31, 2007.
But while Goldman was praised for its foresight, some argued its bets against the securities it created gave it a vested interest in their failure. These securities performed very poorly for the long investors and by April 2010, at least US$5 billion (~$6.82 billion in 2023) worth of the securities either carried "junk" ratings or had defaulted. One CDO examined by critics which Goldman bet against but also sold to investors, was the $800 million (~$1.16 billion in 2023) Hudson Mezzanine CDO issued in 2006. In the Senate Permanent Subcommittee hearings, Goldman executives stated that the company was trying to remove subprime securities from its books. Unable to sell them directly, it included them in the underlying securities of the CDO and took the short side, but critics McLean and Nocera complained the CDO prospectus did not explain this but described its contents as "'assets sourced from the Street', making it sound as though Goldman randomly selected the securities, instead of specifically creating a hedge for its own book". The CDO did not perform well, and by March 2008 – just 18 months after its issue – so many borrowers had defaulted that holders of the security paid out "about US$310 million to Goldman and others who had bet against it". Goldman's head of European fixed-income sales lamented in an e-mail made public by the Senate Permanent Subcommittee on Investigations, the "real bad feeling across European sales about some of the trades we did with clients" who had invested in the CDO. "The damage this has done to our franchise is very significant."
Critics also complain that while Goldman's investors were large, ostensibly sophisticated banks and insurers, at least some of the CDO securities and their losses filtered down to small public agencies—"money used to run schools and fix potholes and fund municipal budgets". For example, an investor in Abacus, IKB Bank, "created a structured investment vehicle called Rhinebridge. Rhinebridge, like other SIVs, issued debt that it then used to buy mortgage-backed securities and CDOs like Abacus. The debt issued by Rhinebridge, ... was bought by among others, King County, Washington, which managed money on behalf of one hundred other public agencies. This was money used to run schools and fix potholes and fund municipal budgets . ... For all of Goldman's later claims that it dealt only with the most sophisticated of investors, the fact remained that those investors could be fiduciaries, investing on behalf of school districts, fire departments, pensioners, and municipalities all across the country."
IKB "paid for its share of the deal with money it collected from a number of relatively unsophisticated investors including King County in Washington state. In 2007, the county bought US$100 million of commercial paper, a type of short-term debt, from Rhineland, a special fund created by IKB that in turn snapped up nearly US$150 million of the securities created by the Goldman vehicle known as Abacus 2007-AC1. ... [King County also made a] US$50-million purchase ... in 2007 from another IKB fund, dubbed Rhinebridge. The county lost US$19 million when Rhinebridge collapsed—and an additional US$54 million when other similar funds defaulted. About 100 county agencies in the Seattle area, including some that deal with libraries and schools, saw their budgets cut as a result."
In public statements, Goldman claimed that it shorted simply to hedge and was not expecting the CDOs to fail. It also denied that its investors were unaware of Goldman's bets against the products it was selling to them. There were intricate links between a Goldman Sachs trader, Jonathan M. Egol, synthetic collateralized debt obligations, or C.D.O., ABACUS, and asset-backed securities index (ABX).
Goldman is also alleged to have tried to pressure the credit rating agency Moody's give its products a higher rating than they deserved. According to an article in ProPublica, "Goldman and other firms often seemed to have pressured the agencies to give good ratings. E-mails released last week by the Senate investigations subcommittee give a glimpse of the back-and-forth (PDF). "I am getting serious pushback from Goldman on a deal that they want to go to market with today," wrote one Moody's employee in an internal e-mail message in April 2006. The Senate subcommittee found that rating decisions were often subject to concerns about losing market share to competitors. The agencies are, after all, paid by the firms whose products they rate."

### 2010 SEC civil fraud lawsuit

In April 2010, the U.S. Securities and Exchange Commission (SEC) charged Goldman Sachs and one of its vice-presidents, Fabrice Tourre, with securities fraud. The SEC alleged that Goldman had told buyers of a synthetic CDO, a type of investment, that the underlying assets in the investment had been picked by an independent CDO manager, ACA Management. In fact, Paulson & Co. a hedge fund that wanted to bet against the investment had played a "significant role" in the selection, and the package of securities turned out to become "one of the worst-performing mortgage deals of the housing crisis" because "less than a year after the deal was completed, 100% of the bonds selected for Abacus had been downgraded".
The particular synthetic CDO that the SEC's 2010 fraud suit charged Goldman with misleading investors with was called Abacus 2007-AC1. Unlike many of the Abacus securities, 2007-AC1 did not have Goldman Sachs as a short seller, in fact, Goldman Sachs lost money on the deal. That position was taken by the customer (John Paulson) who hired Goldman to issue the security (according to the SEC's complaint). Paulson and his employees selected 90 BBB-rated mortgage bonds that they believed were most likely to lose value and so the best bet to buy insurance for. Paulson and the manager of the CDO, ACA Management, worked on the portfolio of 90 bonds to be insured (ACA allegedly unaware of Paulson's short position), coming to an agreement in late February 2007. Paulson paid Goldman approximately US$15 million for its work in the deal. Paulson ultimately made a US$1 billion profit from the short investments, the profits coming from the losses of the investors and their insurers. These were primarily IKB Deutsche Industriebank (US$150 million loss), and the investors and insurers of another US$900 million—ACA Financial Guaranty Corp, ABN AMRO, and the Royal Bank of Scotland.
The SEC alleged that Goldman "materially misstated and omitted facts in disclosure documents" about the financial security, including the fact that it had "permitted a client that was betting against the mortgage market [the hedge fund manager Paulson & Co.] to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party," ACA Management. The SEC further alleged that "Tourre also misled ACA into believing ... that Paulson's interests in the collateral section [sic] process were aligned with ACA's, when in reality Paulson's interests were sharply conflicting."
In reply Goldman issued a statement saying the SEC's charges were "unfounded in law and fact", and in later statements maintained that it had not structured the portfolio to lose money, that it had provided extensive disclosure to the long investors in the CDO, that it had lost $90 million, that ACA selected the portfolio without Goldman suggesting Paulson was to be a long investor, that it did not disclose the identities of a buyer to a seller and vice versa as it was not normal business practice for a market maker, and that ACA was itself the largest purchaser of the Abacus pool, investing US$951 million. Goldman also stated that any investor losses resulted from the overall negative performance of the entire sector, rather than from a particular security in the CDO.
While some journalists and analysts have called these statements misleading, others believed Goldman's defense was strong and the SEC's case was weak.
Some experts on securities law such as Duke University law professor James Cox, believed the suit had merit because Goldman was aware of the relevance of Paulson's involvement and took steps to downplay it. Others, including Wayne State University Law School law professor Peter Henning, noted that the major purchasers were sophisticated investors capable of accurately assessing the risks involved, even without knowledge of the part played by Paulson.
Critics of Goldman Sachs point out that Paulson went to Goldman Sachs after being turned down for ethical reasons by another investment bank, Bear Stearns who he had asked to build a CDO. Ira Wagner, the head of Bear Stearns's CDO Group in 2007, told the Financial Crisis Inquiry Commission that having the short investors select the referenced collateral as a serious conflict of interest and the structure of the deal Paulson was proposing encouraged Paulson to pick the worst assets. Describing Bear Stearns's reasoning, one author compared the deal to "a bettor asking a football owner to bench a star quarterback to improve the odds of his wager against the team." Goldman claimed it lost $90 million, critics maintain it was simply unable (not due to a lack of trying) to shed its position before the underlying securities defaulted.
Critics also question whether the deal was ethical, even if it was legal. Goldman had considerable advantages over its long customers. According to McLean and Nocera there were dozens of securities being insured in the CDO—for example, another ABACUS—had 130 credits from several different mortgage originators, commercial mortgage-backed securities, debt from Sallie Mae, credit cards, etc. Goldman bought mortgages to create securities, which made it "far more likely than its clients to have early knowledge" that the housing bubble was deflating and the mortgage originators like New Century had begun to falsify documentation and sell mortgages to customers unable to pay the mortgage-holders back—which is why the fine print on at least one ABACUS prospectus warned long investors that the 'Protection Buyer' (Goldman) 'may have information, including material, non-public information' which it was not providing to the long investors.
According to an article in the Houston Chronicle, critics also worried that Abacus might undermine the position of the US "as a safe harbor for the world's investors" and that "The involvement of European interests as losers in this allegedly fixed game has attracted the attention of that region's political leaders, most notably British Prime Minister Gordon Brown, who has accused Goldman of "moral bankruptcy". This is, in short, a big global story ... Is what Goldman Sachs did with its Abacus investment vehicle illegal? That will be for the courts to decide, ... But it doesn't take a judge and jury to conclude that, legalities aside, this was just wrong."
On July 15, 2010, Goldman settled out of court, agreeing to pay the SEC and investors US$550 million, including $300 million to the U.S. government and $250 million to investors, one of the largest penalties ever paid by a Wall Street firm. The company did not admit or deny wrongdoing, but did admit that its marketing materials for the investment "contained incomplete information", and agreed to change some of its business practices regarding mortgage investments.

#### Charges against Fabrice Tourre

The settlement in July 2010 did not cover charges against Goldman vice president and salesman for Abacus, Fabrice Tourre. Tourre unsuccessfully sought a dismissal of the suit, which went to trial in 2013. On August 1, a federal jury found Tourre liable on six of seven counts, including that he misled investors about the mortgage deal. He was found not liable on the most specific charge, that he deliberately made an untrue or misleading statement. Tourre was not subject to criminal charges or jail time. He was fined $650,000 and forced to return a $175,000 bonus. Tourre then pursued a career in academia.

## Alleged commodity price manipulation

A provision of the 1999 financial deregulation law, the Gramm-Leach-Bliley Act, allows commercial banks to enter into any business activity that is "complementary to a financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally." Since the passing of the laws, Goldman Sachs and other investment banks such as Morgan Stanley and JPMorgan Chase have branched out into ownership of a wide variety of enterprises including raw materials, such as food products, zinc, copper, tin, nickel and, aluminum.
Some critics, such as Matt Taibbi, believe that allowing a company to both "control the supply of crucial physical commodities, and also trade in the financial products that might be related to those markets," is "akin to letting casino owners who take book on NFL games during the week also coach all the teams on Sundays."

### Goldman Sachs Commodity Index and the 2005–2008 Food Bubble

Frederick Kaufman, a contributing editor of Harper's Magazine, argued in a 2010 article that Goldman's creation of the Goldman Sachs Commodity Index (now the S&P GSCI) helped passive investors such as pension funds, mutual funds and others engage in food price speculation by betting on financial products based on the commodity index. These financial products disturbed the normal relationship between supply and demand, making prices more volatile and defeating the price stabilization mechanism of the futures exchange.
A June 2010 article in The Economist defended commodity investors and oil index-tracking funds, citing a report by the Organisation for Economic Co-operation and Development that found that commodities without futures markets and ignored by index-tracking funds also saw price rises during the period.

#### Alleged manipulation of aluminum price and supply

Although it was described by others as just a conspiracy theory, in a July 2013 article, David Kocieniewski, a journalist with The New York Times, accused Goldman Sachs and other Wall Street firms of "capitalizing on loosened federal regulations" to manipulate "a variety of commodities markets", particularly aluminum, citing "financial records, regulatory documents, and interviews with people involved in the activities". After Goldman Sachs purchased aluminum warehousing company Metro International in 2010, the wait of warehouse customers for delivery of aluminum supplies to their factories – to make beer cans, home siding, and other products – went from an average of 6 weeks to more than 16 months. The premium on all aluminum sold in the spot market doubled, with industry analysts blaming the lengthy delays at Metro International, costing American consumers more than $5 billion from 2010 to 2013. Goldman's ownership of a quarter of the national supply of aluminum – a million and a half tons – in a network of 27 Metro International warehouses in Detroit, Michigan, was blamed. To avoid hoarding and price manipulation, the London Metal Exchange requires that "at least 3,000 tons of that metal must be moved out each day". According to the article, Goldman dealt with this requirement by moving the aluminum – not to factories, but "from one warehouse to another".
In August 2013, Goldman Sachs was subpoenaed by the federal Commodity Futures Trading Commission as part of an investigation into complaints that Goldman-owned metals warehouses had "intentionally created delays and inflated the price of aluminum".
According to Lydia DePillis of Wonkblog, when Goldman bought the warehouses it "started paying traders extra to bring their metal" to Goldman's warehouses "rather than anywhere else. The longer it stays, the more rent Goldman can charge, which is then passed on to the buyer in the form of a premium." The effect is "amplified" by another company, Glencore, which is "doing the same thing in its warehouse in Vlissingen".
Columnist Matt Levine, writing for Bloomberg News, described the conspiracy theory as "pretty silly", but said that it was a rational outcome of an irrational and inefficient system which Goldman Sachs may not have properly understood.
In December 2014, Goldman Sachs sold its aluminum warehousing business to Ruben Brothers.
In March 2015, the legal case against Goldman Sachs, JPMorgan Chase, Glencore, the two investment banks' warehousing businesses, and the London Metal Exchange in various combinations – of violating U.S. anti-trust laws, was dismissed by United States District Court for the Southern District of New York Judge Katherine B. Forrest in Manhattan for lack of evidence and other reasons. The lawsuit was revived in 2019 after the 2nd U.S. Circuit Court of Appeals in Manhattan said the previous decision was in error. That case was dismissed by judge Paul A. Engelmayer in 2021 although Reynolds Consumer Products and two other plaintiffs that had directly transacted with the defendants were allowed to pursue the case. Those purchasers settled with Goldman and JPMorgan Chase in 2022.

### Oil futures speculation

Investment banks, including Goldman, have also been accused of driving up the price of gasoline by speculating on the oil futures exchange. In August 2011, "confidential documents" were leaked "detailing the positions" in the oil futures market of several investment banks, including Goldman Sachs, Morgan Stanley, JPMorgan Chase, Deutsche Bank, and Barclays, just before the peak in gasoline prices in the summer of 2008. The presence of positions by investment banks on the market was significant for the fact that the banks have deep pockets, and so the means to significantly sway prices, and unlike traditional market participants, neither produced oil nor ever took physical possession of actual barrels of oil they bought and sold. Journalist Kate Sheppard of Mother Jones called it "a development that many say is artificially raising the price of crude". However, another source stated that "Just before crude oil hit its record high in mid-2008, 15 of the world's largest banks were betting that prices would fall, according to private trading data...."
In April 2011, a couple of observers—Brad Johnson of the blog Climate Progress, founded by Joseph J. Romm, and Alain Sherter of CBS MoneyWatch—noted that Goldman Sachs was warning investors of a dangerous spike in the price of oil. Climate Progress quoted Goldman as warning "that the price of oil has grown out of control due to excessive speculation" in petroleum futures, and that "net speculative positions are four times as high as in June 2008." when the price of oil peaked.
It stated that "Goldman Sachs told its clients that it believed speculators like itself had artificially driven the price of oil at least $20 higher than supply and demand dictate." Sherter noted that Goldman's concern over speculation did not prevent it (along with other speculators) from lobbying against regulations by the Commodity Futures Trading Commission to establish "position limits", which would cap the number of futures contracts a trader can hold, and thus prevent speculation.
According to Joseph P. Kennedy II, by 2012, prices on the oil commodity market had become influenced by "hedge funds and bankers" pumping "billions of purely speculative dollars into commodity exchanges, chasing a limited number of barrels and driving up the price". The problem started, according to Kennedy, in 1991, when
   just a few years after oil futures began trading on the New York Mercantile Exchange, Goldman Sachs made an argument to the Commodity Futures Trading Commission that Wall Street dealers who put down big bets on oil should be considered legitimate hedgers and granted an exemption from regulatory limits on their trades. The commission granted an exemption that ultimately allowed Goldman Sachs to process billions of dollars in speculative oil trades. Other exemptions followed
and "by 2008, eight investment banks accounted for 32% of the total oil futures market."

## Improper securities lending practices

In January 2016, Goldman Sachs agreed to pay $15 million after it was found that a team of Goldman employees, between 2008 and 2013, "granted locates" by arranging to borrow securities to settle short sales without adequate review. However, U.S. regulation for short selling requires brokerages to enter an agreement to borrow securities on behalf of customers or to have "reasonable grounds" for believing that it can borrow the security before entering contracts to complete the sale. Additionally, Goldman Sachs gave "incomplete and unclear" responses to information requests from SEC compliance examiners in 2013 about the firm's securities lending practices.

## 1MDB Malaysian sovereign wealth fund scandal (2015–)

According to the Thomson Reuters league tables, Goldman Sachs was the most successful foreign investment bank in Malaysia from 2011 to 2013. In 2013, the bank had a 21% market share in Malaysia's investment banking segment, double that of its nearest rival, mostly due to business with the Malaysian sovereign wealth fund, 1Malaysia Development Berhad (1MDB).
In 2015, U.S. prosecutors began examining the role of Goldman Sachs in helping 1MDB raise more than $6 billion. The 1MDB bond deals are said to generate "above-average" commission and fees for Goldman Sachs amounting close to $600 million or more than 9% of the proceeds.
Beginning in 2016, Goldman Sachs was investigated for a $3 billion bond created by Goldman for 1MDB. Prosecutors investigated if the bank failed to comply with the U.S. Bank Secrecy Act, which requires financial institutions to report suspicious transactions to regulators.