A private equity investor is quoted questioning the existence of a “Chinese wall” at Goldman in a new book about Goldman Sachs.
Whether or not Goldman Sachs has a “Chinese Wall” barring prop traders from trading on information gleaned from the firm’s client business has been questioned for some time now.
(Technically, all firms that engage in both have to separate the businesses, or it’s illegal.)
Now it’s the subject of one portion of the book, “Money and Power: How Goldman Sachs Took Over The World.”
The New York Times has an excerpt which quotes a private equity investor saying:
“[Goldman views] information gathered from their client businesses as free for them to trade on … it’s as simple as that. If they are in a client situation, working on a deal, and they’re learning everything there is to know about that business, they take all that information, pass it up through their organisation, and use that information to trade against the client, against other clients, et cetera, et cetera.”
“I don’t understand how that’s legal.”
Of course this doesn’t provide anything conclusive, it’s just hearsay. But add to it these two other pieces of hearsay –
1. Last year, it emerged that Jerry Ouderkirk ran both Goldman’s CLO prop trading desk and its client trading desk and that the desks were located directly next to one another. (Ouderkirk was later removed from the CLO prop trading post when Goldman stopped CLO prop trading.)
2. Later last year, a former Goldman Sachs programmer said, “Unbeknownst to most of the non-strategists, you could see basically every position and holding across the company, whether you were supposed to or not.” (Goldman says this isn’t true.)
And you at least have a reason to wonder.