So read the Goldman Sachs statement given to clients to provide assurance of integrity in the firm’s operations. The boilerplate language of empty promises also included assurances of, “We have extensive procedures and controls that are designed to identify and address conflicts of interest.”
However, there is a slight problem with those promises and claims and how Goldman actually behaved. Goldman put together a bond deal with Paulson & Co, a hedge fund. Paulson helped to pick the mortgages being bundled. Paulson & Co was positioning itself short on the bonds. In plain English, Paulson & Co & Goldman put dog mortgages in the bundles knowing that they would default. Voila! They make a billion on the deal and the Arkansas Teacher Retirement System and other investors left holding the worthless bonds. Paulson netted about $1 billion on the deal. The mortgagors defaulted and the bonds tanked.
Now there is a class-action suit, led by the teachers, that is based on Goldman’s promises of integrity. The defense? “Shucks, folks, that’s just boilerplate. It don’t mean nuthin’.” They are right about that. However, the U.S. Supreme Court has taken up the case and will decide whether promises about integrity and protecting clients from conflicts can be the foundation for class-action investor suits for losses. The court was struggling. Do false statements about integrity and managing conflicts count in the formation of the investor relationship? Not in the Goldman book.
Here’s a safety tip — when a company uses “integrity” instead of ethics, it is a trick. You can have integrity if you never follow the speed limit or curb your dog. You never fail in being a scofflaw. Whether you are ethical in doing so is a different question.