Goldman Sachs and the $580 Million Black Hole

[wundermonk]

Fascinating (to read) story on the inside workings at Goldman Sachs here (http://www.nytimes.com/2012/07/15/business/goldman-sachs-and-a-sale-gone-horribly-awry.html?_r=1).

The story is too long to post here but here is the summary.

(1) Dragon Systems develops a great piece of voice recognition technology.
(2) They want more funds to grow and approach Goldman Sachs for advice on an M&A (Mergers & Acquisitions) deal.
(3) Goldman assigns a team of four investment bankers to help Dragon Systems find a suitable buyer. The fee for this brokerage service is $5 Million.
(4) The team identifies a potential buyer L&H.
(5) The team of i bankers play truant and do not perform due diligence.
(6) L&H meanwhile cooks their books and pretends to be a great acquirer of Dragon Systems.
(7) Goldman, itself, is thinking of investing in L&H, however, some of its equity analysts actually DO some checking and discover that L&H is COOKING ITS BOOKS.
(8) Despite (7), the team of 4 i bankers do not raise any red flags about L&H's buyout of Dragon Systems.
(9) An all cash deal gets changed to an all stock deal right when L&H's stock is trading at a high.
(10) Right after the deal, L&H's stocks plummet and Dragon Systems has neither cash nor paper money.
(11) The founders of Dragon Systems are currently suing Goldman for failing and essentially killing the company.

I have always believed that many of these freshly minted MBAs from the Harvards/Stanfords/IIMs who end up working on Wall Street have very little sense of ethics. Financial engineering seems like alchemy - you get something from nothing. But, it only appears so. There is no free lunch. Many of these i banking firms do not really help the economy. The strength of the economy emerges from brick-and-mortar companies - be it technology or manufacturing.

This story just corroborates that view.

[charitra]

An interesting case. GeorgeBush signed an ‘accountability law’ that implicates the CEO and CFO in cases of wrongdoing that takes place in corporate world. Prior to thatCEOs used walk way shrugging off any allegations heaped on them. Nowadays both the CEO and CFO must co sign the financial reports confirming their verification on authenticity of the numbers on the annual report, based on which the stockexchange trading goes on. As a result many CEOs and CFO s are tried and are doing jail time now. MSNBCs American Greed series presents a variety of these cases regularly to the viewers. Cooking the books is the most common line followed in fleecing money from investors.These financial crimes are caught in the USA much more frequently thanks to the ever alert SEC and FBI, I am afraid the watchdogs and investigative agencies elsewhere are not as effective as here. Namaste.

[realdemigod]

Goldman Sachs will get away unscathed.. many people in the senate are GS board members..and GS funds President campaign. Obama (any US president) can only make a public stunt of accusing them but greedily sucking up money behind screen

[Adhvagat]

Funny world we live in.

[ShriBala]

It's not called Govt Sachs :mad: for nothing.

Even better, the vampire squid (with all apologies to this animal) :D



Fascinating (to read) story on the inside workings at Goldman Sachs here (http://www.nytimes.com/2012/07/15/business/goldman-sachs-and-a-sale-gone-horribly-awry.html?_r=1).

The story is too long to post here but here is the summary.

(1) Dragon Systems develops a great piece of voice recognition technology.
(2) They want more funds to grow and approach Goldman Sachs for advice on an M&A (Mergers & Acquisitions) deal.
(3) Goldman assigns a team of four investment bankers to help Dragon Systems find a suitable buyer. The fee for this brokerage service is $5 Million.
(4) The team identifies a potential buyer L&H.
(5) The team of i bankers play truant and do not perform due diligence.
(6) L&H meanwhile cooks their books and pretends to be a great acquirer of Dragon Systems.
(7) Goldman, itself, is thinking of investing in L&H, however, some of its equity analysts actually DO some checking and discover that L&H is COOKING ITS BOOKS.
(8) Despite (7), the team of 4 i bankers do not raise any red flags about L&H's buyout of Dragon Systems.
(9) An all cash deal gets changed to an all stock deal right when L&H's stock is trading at a high.
(10) Right after the deal, L&H's stocks plummet and Dragon Systems has neither cash nor paper money.
(11) The founders of Dragon Systems are currently suing Goldman for failing and essentially killing the company.

I have always believed that many of these freshly minted MBAs from the Harvards/Stanfords/IIMs who end up working on Wall Street have very little sense of ethics. Financial engineering seems like alchemy - you get something from nothing. But, it only appears so. There is no free lunch. Many of these i banking firms do not really help the economy. The strength of the economy emerges from brick-and-mortar companies - be it technology or manufacturing.

This story just corroborates that view.