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At Goldman Sachs, it seems some investors may be more equal than others
By Lauren | August 31, 2009
The Wall Street Journal reported last week that investment house Goldman Sachs has been giving about fifty of its top investors early stock tips and analysis that its other investors didn’t receive. According to the Journal, Goldman’s analysts meet weekly at a “trading huddle” to share insights and recommendations. Tips generated in those meetings then reportedly get passed on to Goldman’s most favored investors first, being offered to Goldman’s other clients later if at all.
Is it illegal for an investment firm to play favorites among its clients? Not necessarily. Federal securities laws require investment firms to engage in “fair dealing” with their customers, and to refrain from allowing its analysts to issue opinions that contradict their true beliefs about a stock. But if an investment firm eventually publishes written research to all of its clients, the firm may have satisfied the letter of the law despite having tipped top investors early.
Whether it’s entirely ethical to play favorites among clients is another question. The Journal reports that Goldman’s stock research chief, Steven Strongin, claims that no one gains an unfair advantage in its trading huddles. He may even be right - smaller investors might not benefit from the tips that come out of Goldman’s weekly meetings. Still, that decision probably belongs with the investors, not with Goldman’s management, and some of Goldman’s less favored investors are probably furious in the wake of this disclosure. Goldman may not have breached the securities laws by giving some clients more (and maybe better) information than others, but it would probably be better practice - and better customer relations - for Goldman to share its analysts’ insights more broadly.
To read the Journal article, go to http://online.wsj.com/article/SB125107135585052521.html.
Topics: Business Ethics, business communications, customer relations, ethics |