Now Joe Nocera has obtained, due to a clerical error, documents detailing Goldman Sachs screwing its IPO clients. Goldman’s clients, eToys, are in the midst of a lawsuit against Goldman. eToys is claiming Goldman conspired to keep the price of the IPO low to benefit their investment bank clients who gave Goldman a kickback in return. eToys later went out of business partly due to lacking capital that it could have raised in a more honest IPO.
Recently, however, I came across a cache of documents related to the eToys litigation that seem to tilt the argument in favor of the skeptics. Although the documents were supposed to be under seal, they were sitting in a file at the New York County Clerk’s Office, available to anyone who asked for them. I asked.
What they clearly show is that Goldman knew exactly what it was doing when it underpriced the eToys I.P.O. — and many others as well. (According to the lawsuit, Fitt led around a dozen underwritings in 1999, several of which were also woefully underpriced.) Taken in their entirety, the e-mails and internal reports show Goldman took advantage of naïve Internet start-ups to fatten its own bottom line.
The documents detail that Goldman’s focus was on using the eToys IPO to generate more business with its investment clients. After the investment clients profited the Goldman Sales force sprung into action calling the clients to secure more business gaining large commissions. A quid pro quo with eToys and other IPO clients losing out.
Goldman carefully calculated the first-day gains reaped by its investment clients. After compiling the numbers in something it called a trade-up report, the Goldman sales force would call on clients, show them how much they had made from Goldman’s I.P.O.’s and demand that they reward Goldman with increased business. It was not unusual for Goldman sales representatives to ask that 30 to 50 percent of the first-day profits be returned to Goldman via commissions, according to depositions given in the case.
“What specifically do you recall” your Goldman broker wanting, asked one of the plaintiffs’ lawyers in a deposition with an investor named Andrew Hale Siegal.
“You made $50,000, how about $25,000 back?” came the answer. “You know, you made a killing.”
“Did he ever explain to you how to pay it back?” asked the lawyer.
“No. But we both knew that I knew how,” Siegal replied. “I mean, commissions, however I could generate.”
30-50%! Now that’s an incentive structure.
Luckily for Goldman Sachs they were not so greedy they forgot to do another kickback, this one in the form of bribes to Congress and the President. Otherwise they might have to actually suffer for their misbehavior. But having bought protection from the Justice Department while getting massive subsidies and bailout guarantees from the Federal Reserve ensures Goldman’s continued survival and dominance. And as long as Goldman has the government behind them they will have clients no matter how likely they are to treat them like Muppets.




22 Comments

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One of the problems here is how you define a “successful” IPO. Traditionally, good IPO underwriting meant that you sold out on the first day. The ability to attract share subscribers in advance is what you go to a venerable house for.
The important pert here, is the kickbacks.
Gee, and here I thought that they made so much money by being strictly on the up and up.
Knowingly underpricing makes selling out on day one a lot more likely and is its own problem, at least for the issuer.
Well…..there’s “up” and then there’s “UP”.
Just another crook to add to the list of non-prosecuted villains the Obama administration is accumulating. Gettin’ to be a BIG list.
Whatever “fines” that Goldman Sucks has paid, believe me, it’s still CHUMP CHANGE, and these CROOKS have made out like bandits with their filthy lucre wrought by ripping off all & sundry.
Thanks for the update.
Nice haveing EVERYBODY in your pocket.
I can forgive some of the things Obama has done/not done, but his lack of making all these banksters pay, lilke the S&L crooks did in the 80′s is reprehensible. The Doj prosecutied almost 1,000 individuals for the manipulation and frau they perpertrated on the country. RIght now, only S&P seems like they’ll pay for the fraud and avarice.
DSW – contined EXCELLENT work. THANK YOU!
Ripping the f*cking faces off the muppets redux! Like shooting ducks in a barrell when you know no matter what you do nothing of any consequence will happen to you and that your bosses are waiting to reward you for your criminal acts with big bonuses and other perks.
They are giving me a lot to work with.
Indeed. It makes one almost nostalgic for the S&L disaster, which, clearly was just the dress rehearsal.
Bastardos!
30-50% kickback on the first day’s profits. I’ve never heard of that before. Amazing.
All of finance is now one big ripoff casino. It serves no social purpose and should be outlawed.
What good is Wall Street you ask?
True and they did learn one thing change the laws and buy the law makers. It’s working real good so far.
Dude, your job must be a “five ball juggle” sometimes.
With the DoJ and the SEC totally useless, there is NO LAW to prevent the raping of America.
“Pay off” the government. Isn’t that what happens in third world countries? The corporations steal from the people and the government takes their cut in return for looking the other way. Won;t take long to bring down the greatest country that ever was as this pace. Don’t they know the destruction of the middle class will lead to THEIR destruction as well???
“The corporations steal from the people and the government takes their cut in return for looking the other way.”
Sounds similar to the “Tyranny,” and oppression suffered by America’s founders, by the King’s hands and his corporate cohorts in colonial crime?
Goldman is still the villian here, but eToys and the tech bubble in general contributed to the demise of eToys as well. First of all, they spent way, way too much on advertising that didn’t have a payoff (remember pets.com?). eToys also spent much of its resources on unplanned expenses such as hacking prevention, and they paid big fines to the FTC when their delivery system couldn’t keep up with demand (as was true with many other start-ups in 1999/2000). This last issue really hurt the e-commerce sector in general, and it took years to regain people’s trust and rebuild the business model.
eToys filed for bankruptcy in 2001 and was bought out by KBKids.com. When KBKids itself went bankrupt a few years later, it had more to do with bad management, bad strategic decisions and a toxic company culture that discouraged communication between employees and punished anyone who raised issues, no matter how valid. As a result, the company wasted huge amounts of money and resources and eventually just fell apart. Shocker, the CEO was a Bain guy – a cold, humorless, myopic jerk who micromanaged pennies on spreadsheets but threw away millions on bad ideas.
Absolutely. There’s a lot of reasons businesses go busto beyond lack of capital including eToys which was a dotcom era company. Though getting less value on your IPO than you could have doesn’t help things.
This is fraud plain and simple. The individuals that participated in this should be jailed just like Bernie Madoff and other such perpetrators of fraud. Bernie Madoff’s firm did not get fined, he got jailed.