With Goldman Sachs, Always Read the Fine Print

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By Jonathan Weil

My column today on Goldman Sachs Group Inc. highlighted the remarkable tolerance one of its clients showed for what should have been disqualifying conflicts of interest.

Goldman owns a 19 percent stake in Kinder Morgan Inc., which is buying El Paso Corp., a Goldman client. Why anyone would pay Goldman for advice in a deal where Goldman itself is on the other side is beyond me. It seems some clients would rather risk getting abused by Goldman than take their business to anyone else.

A recent brochure advertising the services of Goldman Sachs Electronic Trading underscores this point. It begins with this slogan: "Goldman Sachs Business Principle #1: Our clients' interests always come first." The fine print comes later, and takes up the entire back page. Here's the section in the disclaimer labeled "conflicts of interest." I'll let the full passage speak for itself:

"We are a full-service, integrated investment banking, investment management, and brokerage firm. The professionals who prepared this material are paid in part based on the profitability of The Goldman Sachs Group Inc., which includes earnings from the firm's trading, capital markets, investment banking and other business. They, along with other salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein or the opinions expressed in research reports issued by our Research Departments, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the views expressed herein. In addition, the professionals who prepared this material may also produce material for, and from time to time, may advise or otherwise be part of our trading desks that trade as principal in the securities mentioned in this material. This material is therefore not independent from our proprietary interests, which may conflict with your interests. We and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material, may from time to time have 'long' or 'short' positions in, act as principal in, and buy or sell the securities or derivatives (including options) thereof in, and act as market maker or specialist in, and serve as a director of, companies mentioned in this material. In addition, we may have served as manager or co-manager of a public offering of securities by any such company within the past three years."

Perhaps that line about Goldman Sachs clients' interests always coming first should have had an asterisk next to it.

(Jonathan Weil is a Bloomberg View columnist. Follow him on Twitter.)

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-0- Mar/09/2012 18:23 GMT