Was Goldman Sachs Involved in Insider Trading?

Goldman Sachs' (NYSE: GS  ) PR flacks could use flak jackets right now. Today, the SEC announced that it was charging the bank with fraud relating to the marketing of a subprime security. However, I'd like to focus on yesterday's front-page report in the The Wall Street Journal that the government is investigating whether Rajat Gupta, a director at Goldman, shared inside information about the bank with Galleon hedge fund head Raj Rajaratnam, who's is at the heart of the government's largest insider-trading case since the 1980s. What's the potential impact for Goldman and its shareholders?

A "first" Goldman doesn't want
This latest development is certainly embarrassing for Goldman. While executives at prominent firms, including Intel (Nasdaq: INTC  ) , IBM (NYSE: IBM  ) , Atheros Communications (Nasdaq: ATHR  ) and Moody's (NYSE: MCO  ) , have already been implicated in the massive insider trading ring, Goldman is the first investment bank to be linked to the scandal.

Furthermore, this comes at a time when the bank is trying to lay low and repair a reputation that has been savaged during the credit crisis. Because of enormous negative media coverage – some of it well-deserved – it's a good bet that much of the public believes this article's headline is self-evident, and that Goldman Sachs is insider trading. Nevertheless, among a constituency far more important to Goldman than the general public -- corporate executives -- the bank's reputation remains excellent.

Shareholders needn't be concerned
Even if the government did file charges against Gupta (which looks like a big "if" at this stage), the long-term fallout of this particular incident for Goldman will likely be very limited. Gupta is a director, not an employee. Last month, the bank announced he wouldn't stand for reelection this year.

 All the same, Goldman knows full well that it will take a lot longer to repair its reputation with the public -- and more importantly, legislators -- in the wake of the credit crisis than it did to repair its balance sheet.

Thanks to three sweeping changes on Wall Street, now's the time to invest in these stocks.

Intel and Moody's are Motley Fool Inside Value choices. Moody's is a Motley Fool Stock Advisor pick. Atheros Communications got the nod from Motley Fool Hidden Gems. Motley Fool Options has recommended buying calls on Intel and writing puts on Moody's. The Fool owns shares of Atheros and has created a covered strangle position on Intel. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Alex Dumortier has no beneficial interest in any of the stocks mentioned in this article. The Motley Fool has a disclosure policy.


Read/Post Comments (11) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 16, 2010, at 12:41 PM, mikecart1 wrote:

    Yes, I hope GS goes bankrupt after this.

  • Report this Comment On April 16, 2010, at 1:02 PM, mhonarvar wrote:

    all I can say is...FINALLY!

  • Report this Comment On April 16, 2010, at 1:23 PM, lution wrote:

    Guess it would be too much to ask that any penalty/fines/lawsuit settlements GS pays comes out of the bonus pool instead of tacking it on as an expense that comes out of the shareholders pocket books.

  • Report this Comment On April 16, 2010, at 2:42 PM, BadCopNoDonuts wrote:

    Thanks for destroying the U.S. economy, GS! Special place in heck for you guys..:-)

  • Report this Comment On April 16, 2010, at 2:43 PM, BadCopNoDonuts wrote:

    Thanks for destroying the U.S. economy, GS! Special place in helk for you guys..:-)

  • Report this Comment On April 16, 2010, at 5:39 PM, SUPERMANSTOCKS wrote:

    better watch it. GS has your tax dollars working hard in their firm. By the way BadcopNoDonuts. This cop doesn't eat many donuts. But he does like Tim Horton's

  • Report this Comment On April 16, 2010, at 7:21 PM, Roxx wrote:

    What a bunch of dopes, The only people that are bancrupting this country are your own government.

  • Report this Comment On April 16, 2010, at 10:22 PM, dgmennie wrote:

    Was Goldman Sachs Involved in Insider Trading?

    Does Elmer Fudd have trouble with the letter "R" ?

  • Report this Comment On April 16, 2010, at 10:24 PM, dgmennie wrote:

    Was Goldman Sachs Involved in Insider Trading?

    Does Elmer Fudd have trouble wiith the letter "R" ?

  • Report this Comment On April 16, 2010, at 10:35 PM, bigcat1969 wrote:

    Question is does it really matter? Unless the government goes after GS (and they won't) all the negative PR in the world won't hurt them. If someone like Morgan had a big PR hit it might result in a problem with customers pulling out money, but GS isn't a bank (unless they need that title to get public money) and doesn't need public money. They clearly front run and are on the bleeding edge of insider trading, but none of it matters. Really what is the biggest possible negative from public opinion? A bit of a drop in managed resources I imagine, but it is GS own investing that drives the company, not cash they manage for others. It's like hating the oil or railroad barons, until they get hit with regulation public opinion is meaningless.

  • Report this Comment On April 17, 2010, at 6:09 AM, Renergie wrote:

    For a better understanding of credit derivatives, visit:

    http://donovanlawgroup.wordpress.com/2010/02/19/how-credit-d...

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1155480, ~/Articles/ArticleHandler.aspx, 11/23/2014 8:31:16 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Advertisement