After three years of the most terrible publicity this side of Jerry Sandusky, things have been looking up recently for Goldman Sachs Group.
Thanks in large part to an evolving media strategy by Jake Siewert, Goldman’s new head of communications, we have been treated to the softer side of Chief Executive Officer Lloyd Blankfein. He has recently made himself available for television and newspaper interviews and has delivered talks at the St. Petersburg International Economic Forum, the Chicago Club and the Economic Club of Washington. He even wrote an op-ed article for Politico and endorsed large swaths of the Dodd-Frank law, admitting that “we were a little mysterious and that was a big problem.”
The emergence of the New Goldman has coincided with the spotlight finally moving onto its competitors. There’s been the “tempest in a teapot” at JPMorgan Chase that resulted in a $6 billion trading loss, momentarily denting the Valyrian armor of Jamie Dimon, the firm’s chief executive officer. There’s been the scandal at Barclays Plc involving the manipulation of the London interbank offered rate, which may yet snare more victims at the US banks that have a role in setting Libor. And there’s been the particularly shameful behaviour of HSBC Holdings Plc, which is accused of abetting terrorists and money-launderers.
Say what you will about Goldman Sachs, but it rarely suffers substantial trading losses, had no role in setting Libor and has not been accused of laundering money for terrorists.
And that’s what makes a New York Times article from July 14 so puzzling. Seemingly out of the blue, the newspaper published a 3,500-word indictment of the firm for the advice —or seeming lack of it —that four Goldman mergers and acquisitions bankers provided to Dragon Systems Inc., a voice-recognition software company, on its $580 million sale to the Belgian firm Lernout & Hauspie 12 years ago.
Using court filings, the Times’s Loren Feldman meticulously pieced together a tale of how James and Janet Baker, a married couple who were pioneers in computer speech, sold Dragon in exchange for L&H stock and then lost it all when L&H turned out to be a fraud. Feldman mined the lawsuits the Bakers filed against many of the deal’s participants and, “based on a trove of legal filings — e-mails, motions and roughly 30 depositions, more than 8,000 pages of sworn testimony in all,” he wrote that he opened up “a rare window on Goldman Sachs and the mystique that surrounds it.”
Not really. It is true that Feldman dug up some disturbing facts about the alleged behaviour of the “Goldman Four,” as the M&A bankers have come to be known in court documents — for instance, Richard Wayner was on vacation at two crucial moments during the deal and later testified that “lingering issues” of due diligence about L&H were not resolved “to his satisfaction.”
It was the Dragon board of directors, not Goldman, that made the fateful decision to take nothing but L&H stock as consideration for the company, even though Dragon shareholders had been offered a mixture of cash and stock.
In the end, the Times article, although riveting, was a journalistic case study in choosing from among many facts those that suit your argument.
The point being, there is often another side to a complex story, assuming you are open to exploring it. For instance, according to court documents I reviewed, the heavily negotiated engagement
letter between Dragon and Goldman specifically excluded Dragon shareholders —including the Bakers and Seagate Technology Plc, Dragon’s largest shareholder -- as parties.
The Times’s expose made much of the fact that Goldman failed to perform sufficient due diligence on L&H to uncover the fraud. First, this charge is absurd — M&A bankers are not forensic accountants. Second, Goldman holds that in previous lawsuits the Bakers brought against 30 separate defendants including L&H’s auditor (KPMG LLP), investment banker (SG Cowen & Co), and officers and creditors, the Bakers “swore under oath” and “represented to this court” that Dragon’s due diligence on “L&H was exhaustive, that verification of L&H’s accounting was not Goldman’s job, and that no amount of due diligence could have detected the fraud.”
Yes, it’s extraordinarily important to hold powerful institutions such as Goldman Sachs to account for reckless or unethical behaviour. As I wrote in my book about the firm, in 2007, it was unacceptable for Goldman Sachs to continue to sell mortgage-backed securities at par to investors around the globe at the same time it was making a huge proprietary bet against the mortgage market.
But enough is enough. The news media can’t continue to take one-sided potshots at Goldman Sachs just because it makes for a good story.
The writer, author of Money and Power: How Goldman Sachs Came to Rule the World, is a Bloomberg View columnist