Goldman Ex-Employee Says Firm Pushed Europe Bank Options

Goldman Sachs
Traders work at the Goldman Sachs Group Inc. booth on the floor of the New York Stock Exchange. Photographer: Peter Foley/Bloomberg

Goldman Sachs Group Inc. sought to profit last year by persuading clients to buy and sell stock options on European banks such as BNP Paribas SA and UniCredit SpA, according to former employee Greg Smith’s new book.

“We must have changed our view on each of these institutions from positive to negative back to positive ten times,” Smith writes in “Why I Left Goldman Sachs: A Wall Street Story,” scheduled for release on Oct. 22. “I remember thinking, ‘How can we be doing this with a straight face? No thinking client could believe that conditions on the ground could change that frequently.”’

Smith, a South African who graduated from Stanford University, is the first former employee to write a critical account of his career at New York-based Goldman Sachs. The 143-year-old firm was once the most profitable on Wall Street and counts among its alumni two former U.S. Treasury secretaries and the European Central Bank president. Excerpts of the book were published yesterday by Politico.

Smith, who said he moved to London from New York to run the U.S. equity-derivatives business in Europe, doesn’t explain in the book how he knows that Goldman Sachs was trying to get clients to trade European bank options. Prices of European bank stocks and other assets fluctuated during the year amid the region’s sovereign debt crisis.

Smith ended a 12-year career at Goldman Sachs with a March 14 New York Times article criticizing what he called a “toxic and destructive culture” in which employees were callous about “ripping their clients off.”

No Evidence

Goldman Sachs investigated Smith’s claims in the article and “found no evidence to support them,” David Wells, a spokesman for the company, said yesterday in an e-mail. The bank declined to comment on the book because it hasn’t had an opportunity to review it, he said.

“It is unfortunate that an individual opinion about Goldman Sachs is amplified in a newspaper and speaks louder than the regular, detailed and intensive feedback you have provided the firm and independent, public surveys of workplace environments,” Chief Executive Officer Lloyd C. Blankfein and President Gary D. Cohn wrote in a memo to employees on the day Smith’s article was published. “Across the firm at all levels, 89 percent of you said that the firm provides exceptional service” to clients.

Smith’s article wiped $2.15 billion off the bank’s market value as it threatened to reignite criticisms of treatment of clients that had emerged in the wake of the 2008 financial crisis. The loss was recovered in less than a week.

Lawsuit, Allegations

The bank paid $550 million in 2010 to settle a lawsuit filed by the Securities & Exchange Commission that alleged it misled investors in a 2007 mortgage-linked security. A Senate subcommittee also singled out Goldman Sachs for criticism, saying it bet against clients in the run-up to the financial crisis. The firm has denied any wrongdoing.

Blankfein, who has been trying to rehabilitate the firm’s image, told CNBC last week that he’s “not looking forward to the hoopla” that will surround the book’s publication.

In the book, as in his article, Smith describes being surprised to hear employees openly disparaging clients as “muppets” when he transferred to the London office last year.

“Being a muppet meant being an idiot, a fool, manipulated by someone else,” Smith says in the book from Grand Central Publishing. “Within days of arriving in London, I was shocked at how many times I heard people -- both very senior and very junior -- refer to their clients as muppets.”

Smith describes drinking and gambling with executives at the firm. He recounts a weekend trip to Las Vegas and a dip in a hotel hot tub with Goldman Sachs colleagues and a topless woman. An executive referred to as Bill-Jo bet a $500 chip on blackjack, doubled his money and handed both chips to Smith, according to the book.

Smith also describes being disappointed with his $500,000 bonus at the end of 2006.

“By any measure, I should have felt exceptionally lucky and grateful,” he writes. “But by the warped logic of Goldman Sachs and Wall Street, I was being screwed.”

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