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Goldman Sachs

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Ethical Dilemma: Goldman Sachs

Was Goldman Sachs Socially Responsible?
Pamela Bryant
Northcentral University

Abstract
Illegal and unethical activity was prevalent in the Goldman Sachs administration and the charges filed against them by the SEC were inevitable. The underlying thought at Goldman Sachs amidst the allegations was a social purpose and a contribution to the economic cycle. While there were many gray areas of activity, this research will focus on the investment strategies used to control the clients financial investment gain and in most cases loss. Furthermore, this paper will outline the unethical behavior that was associated with the fraudulent transactions of Goldman Sachs as it related to the clients and public investors.

Was Goldman Sachs Socially Responsible?

The problem to be investigated is whether Goldman Sachs violated its own Code of Ethics in dealing with clients and public investors. According to the Preamble of the Business Code of Ethics, Goldman Sachs believes the highest standard of integrity should be included as the focal element in a business relationship. Regardless of how perceptive one might be in understanding the investment strategies of Goldman Sachs or even its relationship to the difficulties of the market, it is clear that not all activities were in accordance with the good old-fashioned law of principle and ethics.
Background
Goldman Sachs history has never been clear of controversy, dating back to its inception in 1829. The Laddering investment strategy closely related to a pyramid scheme would collapse close to 42,000 investors causing over $300 billion in losses (Unknown, 2012). In 1940, it was involved in an antitrust lawsuit and the bankruptcy of Penn Central Railroad in 1970. More recently in 2010, the SEC charged Goldman Sachs with deceitfully selling clients mortgage securities designed by a hedge fund. Though the company had, a troubled past it thrived and positioned itself as a powerhouse in the financial industry. The strength of Goldman Sachs was evident in the mortgage debacle many of the major banks in the United States folded; others bought by major investment firms but Goldman Sachs having provoked the crisis made billions betting the mortgage market would crash. The finesse of Goldman Sachs strategies to some might be undisguised fraud and to others a brilliant method of making money by any means necessary within the letter of law.

Layering, Laddering & Huddle Of the many investment strategies that Goldman Sachs used most took on the form of a typical blue-collar scheme, but made millions of dollars. The first of their investment strategies of Layering was the foundation on which the company built its reputation. Marcus Goldman and Samuel Sachs started by providing small businesses with loans then created a market for loans through the sale of commercial paper (Jennings, 2012, 2009).
Layering
The company would purchase large quantities of shares and sell the same shares at an increased price. After which, secondary purchases were made and sold at a future enhanced price increasing profits beyond expectation from the same security. Using clients’ money to make money was the foundation of layering. Profit maximization was the culture of the Goldman Sachs organization, because of this culture the Goldman Rule commonly used when referencing the company; pursue profitable opportunities regardless the effects on others (Watkins, 2011).
Laddering
Goldman’s investment trends changed during the internet era, they quickly became the IPO leader during this era, by manipulate the share price offerings. The laddering scheme gave a false indication of a demand of a stock to the market, creating the illusion that a company was successful and profitable; encouraging investors to purchase the stock. The practice of laddering was eventually condemn by the Company, while denying it involvement in securities fraud Goldman settled for $40-million fine paid to the SEC (Jennings, 2012, 2009) .
Huddle
Activity of the company was parallel to the culture of Goldman Sachs. The SEC requirements of fair dealing with its customers (Craig 2009) mentioned numerous times in Goldman Sachs Code of Conduct however; the trading huddle was customary to the analyst and traders of the company, which was in direct violation of the SEC rules. In a common use of the huddle, the offensive play of action is not apparent until the team comes out of the huddle and the defense has to react according to what they “think” the offensive move will be. Very similar to what the Goldman Sachs team actively participated on a regular basis, meeting to determine long and short term values, but only sharing this information with the Goldman traders and a few select clients. Goldman Sachs did not carry autonomy in being the only company that participated in trading huddles however, there was a clear difference; Goldman Sachs was not subject to SEC rules.
Crossing Ethical Line The greater the profitability opportunity the greater the chances are the company will involve them in behavior that can be regarded as unethical with consequences that can affect the client relationship as well as the standards by which companies are socially responsible. Unethical behavior can ultimately lead to criminal prosecution, but with weak laws, substandard enforcement (Henning, 2012) the pursuit becomes impossible, and lacking the energy and backing needed to bring senior level management to trial. Goldman Sachs undoubtedly tampered with a few laws as it related to the SEC and ruffled the feathers of many investors who could have and did lose millions. However, was the behavior unethical? One action or one company cannot define the principles of Ethics. Only the character of those in leadership defines a company’s ethics. Marcus Goldman and Samuel Sachs developed a foundation of investment strategies accomplished only with joint parties of knowledge and interest. As the company, developed new leadership not only accepted the existing culture but also increased its risk of unethical behavior by developing more schemes. The effect of Goldman Sachs years of strategy would cause millions of dollars in losses and ultimately crash the most lucrative US market, Real Estate.
Conclusion
The acceptance of reality is not always easy. The logic of the law is not always easy to understand. Just numbers does not always easily define the financial profitability of a company. However, it is clear that the arguments that revolve around business and ethics are far from being defined. If a closer a look is taken at the Goldman Sachs Code of Conduct it can be perceived they tarnished every statement as it relates to client relationship of honesty and integrity and meeting client expectations. Nevertheless, research would show us Goldman Sachs did in fact do what the client’s expectation to be profitable.

References
Cohan, William (2011). Money & Power: How Goldman Sachs came to rule the world. New York: Doubleday
Watch.org (2011). Goldman Sachs. December 30, 2011. Retrieved from http://www.sourcewatch.org/index.php?title=Goldman_Sachs#cite_note-34Appendix
Mogielnicki, M., & Jeffers, A. E. (2010). Ethical Implications of the Goldman Sachs Subprime Mortgage Securities Case. Proceedings Of The Northeast Business & Economics Association, 79-86.

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