Tuesday marked the first lecture in the John A. Berges Lecture Series in Business Ethics run through the Mendoza College of Business. In “The Ethics of Goldman Sachs: A Debate,” a panel of professors discussed ethics in business.
Mendoza College’s Jordan Auditorium was full, leaving only standing room, for George Enderle, professor of International Business Ethics, and Paul Schultz, professor of finance to lecture on one of the top global investment banking and securities firms in the world.
To begin the informal debate, Enderle gave a PowerPoint presentation titled “Security and Exchange Commission vs. Goldman Sachs & Co. and Fabrice Tourre,” in which he claimed that Goldman Sachs misled investors. The case of Goldman Sachs was explained as being a faulty investment, titled Abacus 2007, Enderle said.
Abacus 2007 was constructed by Paulson & Co. — a major hedge fund — who according to Enderle “had adverse economic interest.”
In essence, the investors of Abacus 2007 did not know of Paulson & Co.’s influence, and thus received flawed information, he said.
“Abacus was handpicked by a client who believed that the bonds would fail,” Enderle said.
By default, this demonstrated the perception that Goldman Sachs was guilty of being “blind to the ethical dimension,” Enderle said.
Schultz discussed how Paulson & Co. approached Goldman Sachs to develop a Collateralized Debt Obligation that would anticipate that “real estate prices would fall.”
Paulson & Co., as a result, made $1 billion, while Goldman Sachs, Deutsche Industriebank (IKB), and the ACA management lost a great deal of money, Schultz said.
According to him, SEC made a case of fraud against Goldman Sachs and the company eventually settled with the SEC for $550 million.
“The SEC action smells fishy,” Schultz said.
Schultz then discussed how the SEC might have been those who were unethical throughout the process.
“After losses occur, there is a lot of scapegoating that goes on,” Schultz said at the close of his segment.
After the debate component, students were able to ask questions. In response to a question on the level of responsibility Goldman-Sachs has to its investors, Schultz said, “they should offer disclosure and be honest with their investors.”