The case looks at the unethical and illegal fraud committed by Goldman, Sacks & Co. As part of a major securities fraud that took place in early 2007. Goldman Sacks is an investment banking firm headquartered in New York. 2) The Securities and Exchange Commission (SEC) alleged that Goldman Sacks acted unethically by providing investors with misleading information related to a collateral debt obligation (COD) which was linked to the performance of supreme residential mortgage backed securities (ARMS). Connection to Our
Topic: Companies who are led by Coos who are also company founders or who act like the company belongs to them are more likely to commit unethical acts 1) The case is not directly linked to our topic because of the absence of a founder CEO of the company in focus here, Goldman Sacks. 2) Despite this situation, there are instances Of unethical acts committed by top executives at the firm which provides us a reliable overview of the motives and incentives that eventually lead to such actions some of which can be related to the unethical acts committed by founder Coos and their motives or doing so. ) The alleged unethical acts in the case and the actions leading up to it are summarized below: l. Paulson and CO. Inc. A hedge fund founded in 1 994, as a result of extensive analysis it had correctly predicted a significant fall in value of ARMS and was looking into possible transactions to find counterparts to its planned short position and this is where Goldman Sacks comes in. II.
Goldman Sacks set up a ARMS portfolio, the underlying assets were picked by Paulson but it was portrayed to investors that the assets were actually picked by AC Management LLC a reputed firm that was experience with ARMS. Ill. It was portrayed to the investors by Goldman Sacks that the assets in the ARMS portfolio were picked by AC and failed to mention he active role that Paulson played in the process. IV. Goldman Sacks failed to mention the conflicting interests that Paulson had with respect to the ARMS portfolio to both the investors and AC_A.
AC was in fact led to believe that Paulson had long positions in the underlying assets of the portfolio. V. Paulson was able to take a short position on the ARMS using credit default whaps that were issued by Goldman Sacks. Not only Paulson but Goldman Sacks was also poised to earn a significant profit through transaction fees and other avenues associated with these unethical transactions. 4) The main causes that led to these unethical acts being committed include: l.
Conflict of interests – Goldman Sacks knew of the obvious conflict of interest present in the ARMS portfolio that it proactively marketed to its investors. This should never be the case especially with in an investment firm where it is the firm’s discard duty to ensure that such conflicts of interest are not present. II. Lack of due diligence from AC – AC was unable to identify potential threats to the ARMS portfolio even when most Of its assets were low rated securities in a declining SIS housing industry.
Even though it can be argued that they were pressurized by Goldman Sacks and Paulson to an extent and they were under the impression that Paulson had a long position in the underlying assets, they should have been taken a more active role in the due diligence of he securities in the portfolio. Ill. Lack of internal control procedures – Torture, the individual responsible for marketing and implementing the unethical transactions did not have to deal with any internal compliance actions.
A complete lack of internal control procedures in this case provided no hindrance to the unethical actions. 5) Goldman Sacks and Paulson were clearly looking to earn profits at the expense of their institutional investors and AC Unlike founder Coos who are likely to act unethically because of heir risk taking personalities and a strong connection with their business, Torture and others involved in this case were solely driven by the profit earning potential of the unethical transactions. ) It is clear that the motives in this case to act unethically were different than the typical ones that drive founder Coos to act unethically. All the players acting unethically in this case were functioning at the first stage of moral development and they were clearly driven by egoism and most likely thought they could get away it.