The purpose of this paper is to focus on Goldman Sachs and its reputation. This paper draws on several important events related to the past decade’s financial downfall. In addition, the paper attempts to highlight the role of Goldman Sachs played in the making of the Abacus deal as well as the collapse of AIG.

1. Running head: GOLDMAN SACHS AND ITS REPUTATION 1
Goldman Sachs and Its Reputation
Antoinette Broussard
Christos Christou
Oluseun Odumusi
Anshuman Raghav
Regina Tiong
University of Houston-Downtown
MBA 6360-Ethics and Professional Standard
Dr. Ashe and Mr. Lewis
March 1, 2016

2. GOLDMAN SACHS AND ITS REPUTATION 2
Contents
Abstract ........................................................................................................................................... 3
Goldman Sachs Practices................................................................................................................ 3
Explanation to Public...................................................................................................................... 4
What did Goldman Sachs do Wrong?............................................................................................ 5
Facebook Controversy .................................................................................................................... 6
Importance of Reputation................................................................................................................ 7
Reputation Management. ................................................................................................................ 8
Conclusion ...................................................................................................................................... 8
References..................................................................................................................................... 10

3. GOLDMAN SACHS AND ITS REPUTATION 3
Abstract
The purpose of this paper is to focus on Goldman Sachs and its reputation. This paper draws on
several important events related to the past decade’s financial downfall. In addition, the paper
attempts to highlight the role of Goldman Sachs played in the making of the Abacus deal as well
as the collapse of AIG. To have the better understanding of the firm’s role, a detailed research is
conducted to evaluate whether or not the leadership at Goldman Sachs was unethical. In
conclusion, the impact of Goldman Sachs financial transactions will be assessed to determine the
impact on the company’s intangible assets such as goodwill and reputation.
Goldman Sachs and Its Reputation
A tremendous amount of Goldman Sachs’s financial prestige is derived from healthy profit
margins and social networks in important government posts and investment banks. During the
2008 crisis, many of Goldman Sachs business practices came to light and raised questions about
the firm’s integrity toward its clients and the public. Several colliding factors such as: the collapse
of American International Group, Inc. (AIG), creation and marketing of collateralized debt
obligations (CDO), and the handling of Facebook IPO created increased scrutiny of the firm’s
business practices.
Goldman Sachs Practices
After the financial crisis Goldman Sachs was embattled with a torrent of challenges.
According to an executed contract between AIG and Goldman Sachs, there was a great risk of
failure. The constant collateral demands by Goldman Sachs cause the illiquidity of AIG. In the
early 2000s, Goldman Sachs issued a series of CDOs identified as “Abacus 1”. In the lawsuit by
the Securities and Exchange Commission (S.E.C.), Goldman Sachs acknowledges that the
marketing materials for the ABACUS-2007 AC1 contained incomplete information. Furthermore,

4. GOLDMAN SACHS AND ITS REPUTATION 4
“Goldman viewed its clients as sophisticated investors” (Free, 2012) hence saw its responsibility
as providing them with the risks they want to bear. From the corporation’s perspective, there was
nothing wrong with construction of the Abacus CDOs. After declining to reduce its mortgage-
backed securities, Goldman Sachs created a $ 1 billion CDO named Timberwolf I, which was
composed of other CDOs and other derivatives. In a statement published by Free, “When the
business standards committee conducted an interview with 200 clients, reports was revealed that
Goldman Sachs put its interests ahead of those of its clients” (Free, 2012). These findings proved
true with the outcomes of the various lawsuits Goldman Sachs faced.
Explanation to Public
“Goldman Sachs began to have a hard time explaining the company’s transactions to the public,
when revealing emails were released” (Farzad, 2016). In the S.E.C. lawsuit, Goldman agreed to
disgorge $15 million in profits on Abacus AC1 and pay a fine of $535 million. All this was done
without admitting to wrongdoing. Therefore, there is no way that Goldman Sachs can give an
explanation to the S.E.C. that the company is not at fault.
In addition to Facebook’s IPO, the controversy began when the S.E.C. was cynical about the
arrangement about Goldman Sachs’s private offering to its clients. Goldman Sachs concluded that
media attention may be marked with inconsistency with regards to adequate completion of a
governmental private placement under United States law. Basically, this explanation was not
sufficient being that it was given to the media to broadcast.
The investigation also revealed that Goldman Sachs was a major participant in the events
leading up to the financial crisis in 2008. From 2004 through to 2006, the company provided
billions of dollars in loans to mortgage lenders. The chairman of the senate permanent
subcommittee claimed that Goldman Sachs had misled its clients and consequently admitted acting

5. GOLDMAN SACHS AND ITS REPUTATION 5
unethically as well as paying fine and transforming its practices completely. With this
acknowledgement, there is less explanation that Goldman Sachs can give to Congress.
What did Goldman Sachs do Wrong?
In respect to S.E.C.’s charge against Goldman Sachs’s regarding the 2007 synthetic CDO
transaction, ABACUS 2007-AC1 as well as the collapse of AIG, it is particularly interesting to see
the events unfold that questioned the firm’s reputation and its fiduciary duties in investment
banking. This case highlights the legal and reputational nature of an investment bank’s
responsibilities to its counterparties. The fact that Goldman failed to disclose Paulson’s
involvement in the portfolio selection process showed that the firm duties are inappropriate in this
context. Although the firm acknowledges that the CDO marketing materials were incomplete and
that they should have revealed Paulson’s role in portfolio selection, they did not admit nor deny to
the violations of antitrust provision of the Securities Act of 1933 (S.E.C.).
Although Goldman Sachs admitted to this mistake, the conflict of interest arises when the
company introduced Paulson to ACA which led ACA to believe that his interest was aligned with
ACA. According to Bloomberg Business, Janet Tavakoli, who were once a Goldman Sachs
mortgage analyst and now the President of Chicago advisory firm Tavakoli Structures Finance
commented that “Goldman was gaming a weakening system” (Farzad, 2010). Goldman was taking
advantage of a flaw in the CDO system (Farzad, 2010). The firm not only refused to absorb losses
from the CDOs, but according to a November 2008 analysis by the asset management firm Black
Rock, Goldman Sachs’s valuation for the securities were “consistently lower than third party prices”
(Story). Even though it was not proven that the firm arrange for AIG bailout, the reflection of their
actions caused them to be publicly criticized for the collapse of AIG. To defend themselves against
the major allegations in relation to the collapse of AIG and taking short position the CDOs, they

6. GOLDMAN SACHS AND ITS REPUTATION 6
released their 2009 annual report (Farzad, 2010). However, their defense was not strong as it “lacks
critical details” which the firm claimed that they were protecting the confidentiality of their clients
(Farzad, 2010). Throughout the chaos, Goldman Sachs maintained strong financial standing.
Ironically, by the end of 2009. The leadership teams approved one of history’s biggest bonus pools
paid out to employees (McGee, 2010). One cannot help but to wonder how the firm still managed
to reward its employee when they “disputed that it could not have survived if the government
hadn’t paid it in full” (Farzad, 2010). None the less AIG’s involvement in the financial crisis has
an impact to the world’s economy. While the Goldman managers made it clear that they played by
the same rules as everyone else, it is challenging to find the statement true. According to Tawakoni,
“Goldman is trying to pretend it didn’t know better, while also trying to say they are great risk
managers. Goldman cannot have it both ways.” (Farzad, 2010).
Facebook Controversy
Before Facebook is ready for an initial public offering (IPO) of its shares, Goldman Sachs
invested $450 million that valued Facebook at $50 billion. Andrew Sorkin, a financial columnist
for the New York Times, not only exposed the information but he also reported the company is
planning to offer its clients a chance to invest another $1.5 billion privately while maintaining the
number of shareholder below 500 (Blodget, 2012). Sockin’s article exposed the “secret deal” and
gained a massive publicity (Blodget, 2012). However, with the enormous publicity raised concerns
in S.E.C. as they are strict about “advertising” private placement (Blodget, 2012). As the result of
the concern, Goldman Sachs made a shocking announcement, pulling all deals off in the United
States and stating that they would raise the funds from international clients instead.
According to Henry Blodget, CEO and editor-in-chief of Business Insider, that
announcement certainly angered those clients in U.S. that had hoped to invest in Facebook. In

7. GOLDMAN SACHS AND ITS REPUTATION 7
addition, it did more damage to the firm as the public distrust for Goldman Sachs was once stirred
up again. Since the private deal was off the table, Goldman Sachs lost their chance as the primary
banker in the IPO deal (Blodget, 2012). In this situation, Facebook found themselves lose their
“face” due to these IPO deal and has suffered an embarrassment caused by Goldman Sachs.
Importance of Reputation
“Our reputation is one of our most important assets.” (Complaint in class action lawsuit,
Ilene Richman v. Goldman Sachs Group, 10 Civ. 3461 (PAC), Complaint paragraph 154 (taken
from 2007 Goldman Annual Report).)
The above quote from Goldman Sachs Annual Report before the financial crash, suggests
the highest respect from the public, industry and most treasured clients. This reputation was
devastated by the S.E.C. lawsuit April 16, 2010, charged with fraud in conjunction with the Fabrice
Tourre Abacus AC1 deal. Goldman’s fraud, according to the plaintiff, was that it made false and
misleading disclosures to shareholders. As a result, Goldman realized quickly that its reputation
was at stake with its clients, the public and the government. To mitigate the impact, Goldman
pursued a settlement with the S.E.C. in May of 2010.
Goldman Sachs’s reputation tarnished by large amount of public mistrust, the question of
how Goldman remains the world’s leading, most profitable, and successful bank in spite of its
reputation for predatory behavior is both interesting and difficult to believe. While consistently
public opinion is low, Goldman reputation remains high in the industry, clients and employees.
Due to higher average compensation for its employees, and performance for its clients, coming
out of the S.E.C. settlement. In the first quarter of 2011, Goldman lost money on only one day of
trading, and made over $100 million in 32 of those days.

8. GOLDMAN SACHS AND ITS REPUTATION 8
Reputation Management
In May 2010, Goldman Sachs announced the creation of the Business Standards Committee (BSC)
to conduct an extensive review of its business standards and practices. Goldman Sachs identified
three unifying themes across the 39 BSC recommendations which capture the elements of greatest
change and impact on the firm (Reuters, 2013). Such changes included a higher standard of client
care, greater sensitivity and awareness of reputational risk and a deeper commitment to individual
and collective accountability (Reuters, 2013).
In January 2011, Goldman Sachs published the report of the BSC, which made 39
recommendations for change, spanning client service, conflicts and business selection, committee
governance, training and professional development and employee evaluation and incentives. In
February 2013, Goldman Sachs completed the full implementation of each of the
recommendations (Reuters, 2013). Goldman Sachs also started the Chairman session in April 2012,
which has held 92 sessions in over 20 cities across the world and trained over 2000 managing
directors to be more ethical and client inclined (Goldman Sachs, 2013). Lastly, “to help achieve a
higher standard of client care, we established the Firm wide Client and Business Standards
Committee (CBSC) and have changed our committee governance structure and committee mission
statements to ensure that clients are at the very center of our decision-making” (Cohn, 2013).
Conclusion
Goldman Sachs reputation took a hit after the lawsuits and SEC investigation. Their
clients thought they were not looking out for their interest, and the S.E.C. was watching them
like a hawk and domestic investors were angry at them. So, Goldman Sachs management
decided it was necessary to take concrete steps to gain their clients confidence and salvage their
reputation or they might lose customers and collapse like some other investment banks.

9. GOLDMAN SACHS AND ITS REPUTATION 9
Therefore, it is important for Goldman Sachs to raise their ethical standards in order to survive.
Even though Goldman Sachs public reputation hasn’t improved much, but because Goldman
Sachs acted decisively, they were able to save their reputation with their reputation with clients
and regained client and industry confidence, and today they emerged as market leaders and a top
investment bank in the country.

10. GOLDMAN SACHS AND ITS REPUTATION 10
References
Blodget, H. (2012, May 08). How Goldman Sachs Blew The Facebook IPO. Retrieved February
18, 2016, from http://www.businessinsider.com/morgan-stanley-goldman-sachs-
facebook-ipo-2012-5?op=1
Free, C. (2012.January) The Goldman Sachs Abacus 2007-ACI Controversy: An ethical case
study: http://www.e-ir.info/2012/01/19/the-goldman-sachs-abacus-2007-aci-controversy-
an-ethical-case-study/
Cohn, G. D. (2013). Chairma's Forum Stats; A HIGHER STANDARD OF CLIENT CARE.
Retrieved from Goldman Sachs: http://www.goldmansachs.com/s/bsc-
2013/index.html#chairmans-forum
Farzad, Roben. "Goldman Sachs: Don't Blame Us". Businessweek.com. N.p., 2010. Web. 18 Feb.
2016.
Goldman Sachs. (2013, December). Chairman's Forum Stats; BY THE NUMBERS. Retrieved
from Goldman Sachs: http://www.goldmansachs.com/s/bsc-2013/index.html#chairmans-
forum-stats
McGee, S. (2010). Chasing Goldman Sachs: How the masters of the universe melted Wall Street
down-- and why they'll take us to the brink again. New York: Crown.
Reuters. (2013, May 23). Goldman Sachs Releases the Business Standards Committee Impact
Report. Retrieved February 15, 2016, from Reuters: http://www.reuters.com/article/ny-
goldman-sachs-idUSnBw235970a+100+BSW20130523

11. GOLDMAN SACHS AND ITS REPUTATION 11
S.E.C. v. Goldman Sachs and Fabrice Tourre, Final Judgment as to Defendant Goldman Sachs &
Co., Case No. 10-CV-3229. 27. S.E.C. v. Goldman Sachs & Co., and Fabrice Tourre,
Complaint, Case No. 10-CV-3229.
U.S. Security and Exchange Commission. Goldman Sachs To Pay Record $550 Million To Settle
S.E.C. Charges Related To Subprime Mortgage CDO. 2016. Web. 18 Feb. 2016.