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The equity research department is firewalled off from the deal teams doing the offering. It would be unethical if the people who published the research note eve

The equity research department is firewalled off from the deal teams doing the offering. It would be unethical if the people who published the research note even knew anything about the offering.

kbenson 10y ago
> It would be unethical if the people who published the research note even knew anything about the offering. Whether something is unethical is not evidence for or against something happening, it just informs your opinion on whether it happened. Given Goldman's past behavior, I wouldn't let it inform my opinion too much in the direction that they worked in an ethical manner.
- TeMPOraL 10y ago
  Sadly, humans are very good at rationalizing their unethical. The rule of thumb seems to be that whenever there's something unethical but profitable (in terms of money or power), absent any non-moral kind of stopping force (like risk of getting caught and jailed, or social ostracism), a lot of people will be doing that unethical thing. You don't have to go further than to your local grocery store to notice that.
  - dragonwriter 10y ago
    > Sadly, humans are very good at rationalizing their unethical. Humans are also very good on disagreeing on a fundamental level about what is and isn't unethical in general, before even considering rationalizing their own behavior.
    - TeMPOraL 10y ago
      That's true, but sometimes that disagreement also stems from one or both parties rationalizing ;). Like a lot of people who hate being lied to, but have absolutely no resistance from lying to others, and would defend their behaviour if you said to them that lying to people is generally unethical. But my point is, ethics is not a very strong thing, and alone it doesn't stand much chance against free money lying on the table. (What I think people miss is that moral behaviour has to be actively maintained in people, otherwise it slowly erodes. This concept goes against the zeitgeist of contemporary western societies though, because it implies there is a standard to hold oneself to.)
      - dragonwriter 10y ago
        > This concept goes against the zeitgeist of contemporary western societies though, because it implies there is a standard to hold oneself to. The zeitgeist of modern western societies very strongly holds that there is a standard to hold oneself to (it rejects some elements that used to be commonly held to be part of the consensus standard, and adds some that were not, and people who still hold to the rejected elements often portray the new reality as "no standard", when its really just that the dominant standard is now different from their preferences.)
jandrese 10y ago
Oh that's good. I feel safe knowing that investment bankers are highly scrupulous and would never mention anything in the halls or in the lunchroom that might compromise their integrity.
- revelation 10y ago
  Backroom meetings over cigars and a game of poker are so old school. Todays rage is just chatting: http://qz.com/246325/goldman-sachs-aims-to-end-the-era-of-horrifying-trader-chat-transcripts/ http://qz.com/246325/goldman-sachs-aims-to-end-the-era-of-ho... if u cud see ur way to a small drop there might be a steak in it for ya We’re just not, we’re not allowed to have those conversations on [instant messages]
- xadhominemx 10y ago
  The upside to GS for Tesla to issue stock 3% higher is pretty minuscule, if anything (GS probably priced their take at a 20 day trailing average price, or whatever). The downside is enormous, and compliance and the SEC are crawling over the place. Plus, the issuance is going to take place at whatever price investors think the stock is worth. If investors think there's a big conflict of interest, they'll price that in.
  - ForHackernews 10y ago
    > the SEC Hahaha, that's a good one! As though investment banks are afraid of regulators[0]. [0] http://www.thisamericanlife.org/radio-archives/episode/536/the-secret-recordings-of-carmen-segarra http://www.thisamericanlife.org/radio-archives/episode/536/t...
  - tomp 10y ago
    > The downside is enormous Like what, exactly? I mean, it's not like they'd have to pay a massive fine or go to jail.
- kolbe 10y ago
  correl(smoke, fire); 0 ...in our post-prejudicial world.
ck2 10y ago
Who actually audits that? Is there proof? Better firewall would be not even to exist within the same company.
- xadhominemx 10y ago
  Ya, maintaining the Chinese wall between research and investment banking is a pretty central function of compliance and is regularly audited by the SEC.
  - Retric 10y ago
    The last few decades demonstrate the SEC is much closer to a rubber stamp for bad behavior than a meaningful entity.
  - jsprogrammer 10y ago
    What do Chinese have to do with the SEC? Answers are more helpful than downmods.
    - _asummers 10y ago
      From Wikipedia[0]: > Chinese wall is a business term describing an information barrier within an organization that was erected to prevent exchanges or communication that could lead to conflicts of interest. For example, a Chinese wall may be erected to separate and isolate people who make investments from those who are privy to confidential information that could influence the investment decisions. Firms are generally required by law to safeguard insider information and ensure that improper trading does not occur. ... > The origin of the phrase is the Great Wall of China. [0] https://en.wikipedia.org/wiki/Chinese_wall https://en.wikipedia.org/wiki/Chinese_wall
      - jsprogrammer 10y ago
        Yeah, I didn't see anything about SEC in there. That page also quotes a California Superior Court opinion that found the term was a "piece of legal flotsam which should be emphatically abandoned". The same opinion also found: > The origin of the use of "Chinese Wall" in the context of confidentiality is unclear. Evidently, the term was casually coined in some appellate opinion, then picked up and used without question or explanation by courts and commentators. Can you point to an SEC regulation, or other law, that refers to a Chinese Wall? Like, is there a more specific, technical definition? Wikipedia refers to Chinese wall departments in companies; do you know where to find more information about them? Perhaps links to their enforcement and compliance documents?
hristov 10y ago
That is true. Also, Goldman Sachs is so experienced with conflicts of interest that they are just very good at handling them. You see Goldman Sachs experiences so many conflicts of interest all the time that they have obtained expertise in handling these conflicts that people like me and you cannot even imagine. The modern Goldman banker is a unique creature with a conscience that is so complex and evolved that he can earnestly and passionately defend two positions that would seem to me and you completely opposite. ... Ok I have stopped laughing now and I am starting to get angry so I might as well get back to work ...
- deleted 10y ago
  [deleted]
- cloudjacker 10y ago
  beautiful.
- philrapo 10y ago
  You are conflating the investment banker and the equity research analyst, which have legally mandated information sharing firewalls. Also this potential conflict is clearly and openly disclosed, e.g. "This company publishes research and also seeks to do investment banking business with Tesla". Further, Goldman conducted a secondary share offering for Tesla as recently as summer 2015, so it was exceedingly obvious to anyone who makes investment decisions based on the research that this conflict exists. I have worked at several wall street firms and also worked for firms in silicon valley, and I frankly noticed more numerous and blatant conflict of interest situations in silicon valley. EDIT/UPDATE: Prominently displayed in large font on page 1 of the Goldman research report on Tesla: "Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision."
  - lesdeuxmagots 10y ago
    No contest to the claim that there are conflicts of interests in silicon valley, but the firewall / chinese wall between research and banking groups is pretty spotty, despite all the formal processes to try to maintain it. Personally saw tons of sketchy things going on with MDs on IB side influencing research analysts ratings.
nraynaud 10y ago
Isn't the rule in the us the "appearance of conflict of interest", which is even stronger than actual actual collusion?
- azernik 10y ago
  It is for judges, and I think for government officials in general, but not in the private sector as far as I know.
hinkley 10y ago
It's been at least, what, 8 years since Goldman Sachs was involved in any sort of financial crisis involving malfeasance. And for a 147 year old company, 8 years is a really long time. I mean, come on. How would you even think they might be doing something unethical at this point?
- malandrew 10y ago
  "It's been at least, what, 8 years since Goldman Sachs was [caught] in any sort of financial crisis involving malfeasance." FTFY
  - rgbrenner 10y ago
    But that's false. It hasn't been 8 years since Goldman has been caught. Here's one from 2014 where the research division promised favorable research coverage in exchange for investment banking business: http://www.usatoday.com/story/money/markets/2014/12/11/finra-wallstreet-ipos-bansk-fines-/20249937/ http://www.usatoday.com/story/money/markets/2014/12/11/finra... Here's one from 2011 where they promised to stop having "huddles" with some of their clients where they exchanged insider information: http://www.reuters.com/article/us-goldmansachs-huddles-idUSTRE75840Z20110609 http://www.reuters.com/article/us-goldmansachs-huddles-idUST... Here's 2015, where one of their associates used his contacts at the Fed Reserve (where he worked for 7 years right before coming to goldman) to gain confidential regulatory info: http://www.forbes.com/sites/antoinegara/2015/10/28/goldman-sachs-to-pay-50-million-fine-admit-failure-to-supervise-over-fed-breach/#56865cd543c3 http://www.forbes.com/sites/antoinegara/2015/10/28/goldman-s... Again 2015, when they got caught transmitting incorrect and incomplete data on 1/5th of their trades to FINRA (who monitors their activity to watch for violations of federal rules and regs): http://www.bloomberg.com/news/articles/2015-07-27/goldman-fined-1-8-million-by-finra-over-inaccurate-trading-data http://www.bloomberg.com/news/articles/2015-07-27/goldman-fi... Really.. just type goldman fine {year} into google. There's a lot of it.
- sgnelson 10y ago
  You're joking, right? (I'm seriously asking.)
deleted 10y ago
[deleted]
malandrew 10y ago
That's the theory. However, that wall doesn't really exist in practice at any bank that provides both equity research services and investment banking services. The entire reason for offering both services is the comflict of interest. "No conflict, no interest". source: I used to be an analyst in the equity research department at a broker dealer.
deleted 10y ago
[deleted]
pbhjpbhj 10y ago
"Firewalled off" meaning what? Is it an easily discoverable crime if they breach that firewall? This sort of thing brings LIBOR to mind for me ... /naive scepticism

The equity research department is firewalled off from the deal teams doing the offering. It would be unethical if the people who published the research note even knew anything about the offering.

kbenson 10y ago

> It would be unethical if the people who published the research note even knew anything about the offering. Whether something is unethical is not evidence for or against something happening, it just informs your opinion on whether it happened. Given Goldman's past behavior, I wouldn't let it inform my opinion too much in the direction that they worked in an ethical manner.

TeMPOraL 10y ago
Sadly, humans are very good at rationalizing their unethical. The rule of thumb seems to be that whenever there's something unethical but profitable (in terms of money or power), absent any non-moral kind of stopping force (like risk of getting caught and jailed, or social ostracism), a lot of people will be doing that unethical thing. You don't have to go further than to your local grocery store to notice that.
- dragonwriter 10y ago
  > Sadly, humans are very good at rationalizing their unethical. Humans are also very good on disagreeing on a fundamental level about what is and isn't unethical in general, before even considering rationalizing their own behavior.
  - TeMPOraL 10y ago
    That's true, but sometimes that disagreement also stems from one or both parties rationalizing ;). Like a lot of people who hate being lied to, but have absolutely no resistance from lying to others, and would defend their behaviour if you said to them that lying to people is generally unethical. But my point is, ethics is not a very strong thing, and alone it doesn't stand much chance against free money lying on the table. (What I think people miss is that moral behaviour has to be actively maintained in people, otherwise it slowly erodes. This concept goes against the zeitgeist of contemporary western societies though, because it implies there is a standard to hold oneself to.)
    - dragonwriter 10y ago
      > This concept goes against the zeitgeist of contemporary western societies though, because it implies there is a standard to hold oneself to. The zeitgeist of modern western societies very strongly holds that there is a standard to hold oneself to (it rejects some elements that used to be commonly held to be part of the consensus standard, and adds some that were not, and people who still hold to the rejected elements often portray the new reality as "no standard", when its really just that the dominant standard is now different from their preferences.)

jandrese 10y ago

Oh that's good. I feel safe knowing that investment bankers are highly scrupulous and would never mention anything in the halls or in the lunchroom that might compromise their integrity.

revelation 10y ago
Backroom meetings over cigars and a game of poker are so old school. Todays rage is just chatting: http://qz.com/246325/goldman-sachs-aims-to-end-the-era-of-horrifying-trader-chat-transcripts/ http://qz.com/246325/goldman-sachs-aims-to-end-the-era-of-ho... if u cud see ur way to a small drop there might be a steak in it for ya We’re just not, we’re not allowed to have those conversations on [instant messages]
xadhominemx 10y ago
The upside to GS for Tesla to issue stock 3% higher is pretty minuscule, if anything (GS probably priced their take at a 20 day trailing average price, or whatever). The downside is enormous, and compliance and the SEC are crawling over the place. Plus, the issuance is going to take place at whatever price investors think the stock is worth. If investors think there's a big conflict of interest, they'll price that in.
- ForHackernews 10y ago
  > the SEC Hahaha, that's a good one! As though investment banks are afraid of regulators[0]. [0] http://www.thisamericanlife.org/radio-archives/episode/536/the-secret-recordings-of-carmen-segarra http://www.thisamericanlife.org/radio-archives/episode/536/t...
- tomp 10y ago
  > The downside is enormous Like what, exactly? I mean, it's not like they'd have to pay a massive fine or go to jail.
kolbe 10y ago
correl(smoke, fire); 0 ...in our post-prejudicial world.

ck2 10y ago

Who actually audits that? Is there proof? Better firewall would be not even to exist within the same company.

xadhominemx 10y ago
Ya, maintaining the Chinese wall between research and investment banking is a pretty central function of compliance and is regularly audited by the SEC.
- Retric 10y ago
  The last few decades demonstrate the SEC is much closer to a rubber stamp for bad behavior than a meaningful entity.
- jsprogrammer 10y ago
  What do Chinese have to do with the SEC? Answers are more helpful than downmods.
  - _asummers 10y ago
    From Wikipedia[0]: > Chinese wall is a business term describing an information barrier within an organization that was erected to prevent exchanges or communication that could lead to conflicts of interest. For example, a Chinese wall may be erected to separate and isolate people who make investments from those who are privy to confidential information that could influence the investment decisions. Firms are generally required by law to safeguard insider information and ensure that improper trading does not occur. ... > The origin of the phrase is the Great Wall of China. [0] https://en.wikipedia.org/wiki/Chinese_wall https://en.wikipedia.org/wiki/Chinese_wall
    - jsprogrammer 10y ago
      Yeah, I didn't see anything about SEC in there. That page also quotes a California Superior Court opinion that found the term was a "piece of legal flotsam which should be emphatically abandoned". The same opinion also found: > The origin of the use of "Chinese Wall" in the context of confidentiality is unclear. Evidently, the term was casually coined in some appellate opinion, then picked up and used without question or explanation by courts and commentators. Can you point to an SEC regulation, or other law, that refers to a Chinese Wall? Like, is there a more specific, technical definition? Wikipedia refers to Chinese wall departments in companies; do you know where to find more information about them? Perhaps links to their enforcement and compliance documents?

hristov 10y ago

That is true. Also, Goldman Sachs is so experienced with conflicts of interest that they are just very good at handling them. You see Goldman Sachs experiences so many conflicts of interest all the time that they have obtained expertise in handling these conflicts that people like me and you cannot even imagine. The modern Goldman banker is a unique creature with a conscience that is so complex and evolved that he can earnestly and passionately defend two positions that would seem to me and you completely opposite. ... Ok I have stopped laughing now and I am starting to get angry so I might as well get back to work ...

deleted 10y ago
[deleted]
cloudjacker 10y ago
beautiful.
philrapo 10y ago
You are conflating the investment banker and the equity research analyst, which have legally mandated information sharing firewalls. Also this potential conflict is clearly and openly disclosed, e.g. "This company publishes research and also seeks to do investment banking business with Tesla". Further, Goldman conducted a secondary share offering for Tesla as recently as summer 2015, so it was exceedingly obvious to anyone who makes investment decisions based on the research that this conflict exists. I have worked at several wall street firms and also worked for firms in silicon valley, and I frankly noticed more numerous and blatant conflict of interest situations in silicon valley. EDIT/UPDATE: Prominently displayed in large font on page 1 of the Goldman research report on Tesla: "Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision."
- lesdeuxmagots 10y ago
  No contest to the claim that there are conflicts of interests in silicon valley, but the firewall / chinese wall between research and banking groups is pretty spotty, despite all the formal processes to try to maintain it. Personally saw tons of sketchy things going on with MDs on IB side influencing research analysts ratings.

nraynaud 10y ago

Isn't the rule in the us the "appearance of conflict of interest", which is even stronger than actual actual collusion?

azernik 10y ago
It is for judges, and I think for government officials in general, but not in the private sector as far as I know.

hinkley 10y ago

It's been at least, what, 8 years since Goldman Sachs was involved in any sort of financial crisis involving malfeasance. And for a 147 year old company, 8 years is a really long time. I mean, come on. How would you even think they might be doing something unethical at this point?

malandrew 10y ago
"It's been at least, what, 8 years since Goldman Sachs was [caught] in any sort of financial crisis involving malfeasance." FTFY
- rgbrenner 10y ago
  But that's false. It hasn't been 8 years since Goldman has been caught. Here's one from 2014 where the research division promised favorable research coverage in exchange for investment banking business: http://www.usatoday.com/story/money/markets/2014/12/11/finra-wallstreet-ipos-bansk-fines-/20249937/ http://www.usatoday.com/story/money/markets/2014/12/11/finra... Here's one from 2011 where they promised to stop having "huddles" with some of their clients where they exchanged insider information: http://www.reuters.com/article/us-goldmansachs-huddles-idUSTRE75840Z20110609 http://www.reuters.com/article/us-goldmansachs-huddles-idUST... Here's 2015, where one of their associates used his contacts at the Fed Reserve (where he worked for 7 years right before coming to goldman) to gain confidential regulatory info: http://www.forbes.com/sites/antoinegara/2015/10/28/goldman-sachs-to-pay-50-million-fine-admit-failure-to-supervise-over-fed-breach/#56865cd543c3 http://www.forbes.com/sites/antoinegara/2015/10/28/goldman-s... Again 2015, when they got caught transmitting incorrect and incomplete data on 1/5th of their trades to FINRA (who monitors their activity to watch for violations of federal rules and regs): http://www.bloomberg.com/news/articles/2015-07-27/goldman-fined-1-8-million-by-finra-over-inaccurate-trading-data http://www.bloomberg.com/news/articles/2015-07-27/goldman-fi... Really.. just type goldman fine {year} into google. There's a lot of it.
sgnelson 10y ago
You're joking, right? (I'm seriously asking.)

deleted 10y ago

[deleted]

malandrew 10y ago

That's the theory. However, that wall doesn't really exist in practice at any bank that provides both equity research services and investment banking services. The entire reason for offering both services is the comflict of interest. "No conflict, no interest". source: I used to be an analyst in the equity research department at a broker dealer.

deleted 10y ago

[deleted]

pbhjpbhj 10y ago

"Firewalled off" meaning what? Is it an easily discoverable crime if they breach that firewall? This sort of thing brings LIBOR to mind for me ... /naive scepticism