Archive for the ‘Finance’ category

Goldman Sachs, from Semgroup to Long-Term Capital Management?

March 28, 2009

In Forbes April 13 edition is a story about last summer’s oil spike. Semgroup in Tulsa bet big on dropping oil prices. As it turned out, the bet lost $2.4 billion; it has since filed for bankruptcy. Nothing is proven but as Forbes put it: “There is evidence of a malevolent hand at work: oil price manipulation by traders orchestrating a short squeeze to push up the price of West Texas Intermediate crude to the point it would generate fatal losses in Semgroup’s accounts.”

And: “people familiar with the events insist that Citibank, Merril Lynch and especially Goldman Sachs had knowledge about Semgroup’s trading positions from their vetting of an ill-fated $1.5 billion private equity deal last spring.”

And remember when GS said $200 barrel oil was on its way.

Goldman says, according to Forbes, any oil price manipulation allegations are “without merit.”
But this idea of GS having knowledge of a company’s market strategy and then allegedly benefiting from it rang a bell.

In “When Genius Failed,” the story of Long-Term Capital Management, Roger Lowenstein noted that as LTCM was becoming undone it was looking for a savior and thought it found one in GS. “The two firms quickly struck a deal, conditional on Goldman’s raising the money and on Long-Term’s passing an inspection, a customary process.”

Part of that inspection Lowenstein described thus: “In Greenwich, Goldman’s sleuths, who had the run of the office, left no stone unturned. Long-Term’s staff couldn’t keep track of who the Goldman people were, so many were rummaging through the hedge fund’s files. A key member of the Goldman team … according to witnesses … appeared to be downloading Long-Term’s positions … from Long-Term’s own computers, directly into an oversized laptop (a detail which Goldman later denied).”

“Brazenly playing both sides of the street, Goldman represented investment banking at its mercenary ugliest,” wrote Lowenstein. “To J.M. and his partners, Goldman was raping Long-Term in front of their very eyes.”

Maybe this is just how most business is but if true it certainly seems like a lousy way to run a railroad, so to speak. There’s nothing wrong with making money, unless it’s made in an unethical and/or unlawful matter. Even if it “happens all the time” it’s still not right.

We may find out more in April when former FBI director Louis Freeh is expected to release a report on the Semgroup matter.