Goldman Sachs is apparently back to it’s old tricks despite the $550 million settlement with the SEC over hurting clients in the mortgage securities market. Acting on what may have been inside information (more on that later) the firm decided it wanted to heavily invest in Heinz (HNZ), which later would announce it was in talks to be bought out by Warren Buffet. So Goldman Sachs started buying up shares ahead of the merger.
And here is where Goldman’s clients get involved.
An investment bank having a Sell rating on a stock? Usually an unheard of thing: why alienate the management, why prevent future banking business – it’s not like banks are ethical creatures – and sure enough in this particular case, the bank in question had sell recos on just 14% of the stocks in its coverage universe. Which begs the question: what does a Sell rating really accomplish? Well, in this case, and in all such cases, it merely provides the firm’s prop, pardon flow, traders the opportunity to accumulate the shares its “clients” are advised by the same bank’s sellside group to Sell, preferably to the bank in question…
Bottom line: 20% gain for Goldman’s prop traders who bought all the HNZ stock they indirectly “advised” their client counterparts to sell to them.
Ouch. Why would a client ever trust a Goldman advisor again? They just pushed you out of a stock they believed (possibly due to inside information) was about to take off – so they could buy it.
And the hits keep coming on Goldman Sachs’ activity in the Heinz Merger as Reuters revealed the firm is being targeted in an insider trading investigation by the SEC.
Goldman Sachs Group Inc is cooperating with a U.S. Securities and Exchange Commission probe into insider options trading in H.J. Heinz Co before the food company announced it was being acquired, Goldman said on Friday.
Earlier in the day, the SEC filed suit against unknown traders using an account in Switzerland to buy options in Heinz before the company was purchased. The SEC suit does not explicitly name Goldman Sachs but refers to the account in Switzerland as the “GS Account.”
We already knew Goldman was lying about not prop trading but now the firm is back to screwing its clients and insider trading. But then again, can you blame them when the Department of Justice refuses to prosecute and the firm only has to pay a relatively small fine for its criminal behavior? Ripping off clients, insider trading, disrupting markets – it’s just business and now so is breaking the law.