About Goldman Sachs

The Goldman Sachs Group, Inc. is an American multinational investment banking and securities firm that engages in global investment banking, securities, investment management and other financial services primarily with institutional clients. Goldman Sachs was founded in the 1869 by Marcus Goldman and Samuel Sachs and is headquartered at New York City, with additional offices in international financial centers. The firm provides mergers and acquisition advice, underwriting services, asset management and prime brokerage to its clients, which includes corporations, governments and individuals. The firm also engages in market making and private equity deals and is a primary dealer in the United States Treasury Security market. It is recognized as one of the most prestigious banks in the World.

Goldman Sachs is divided into three businesses units: Investment Banking, Trading and Principal Investments, and Asset Management and Securities Services.

Investment banking Investment banking is divided into two divisions and includes Financial Advisory -mergers and acquisitions, investitures, corporate defense activities, restructuring and spin-offs and Underwriting - public offerings and private placements of equity, equity-related and debt instruments. Goldman Sachs is one of the leading M&A advisory firms, often topping the league tables in terms of transaction size. The firm gained a reputation as a white knight in the mergers and acquisitions sector by advising clients on how to avoid hostile takeovers, moves generally viewed as unfriendly to shareholders of targeted companies. Goldman Sachs, for a long time during the 1980s, was the only major investment bank with a strict policy against helping to initiate a hostile takeover, which increased the firm's reputation immensely among sitting management teams at the time. The investment banking segment accounts for around 17 percent of Goldman Sachs revenues.

Trading and principal investments Trading and Principal Investments is the largest of the three segments, and is the company's profit center. The segment is divided into four divisions and includes Fixed Income - The trading of interest rate and credit products, mortgage-backed securities, insurance-linked securities and structured and derivative products; Currency and Commodities - The trading of currencies and commodities; Equities The trading of equities, equity derivatives, structured products, options, and futures contracts and Principal Investments - merchant banking investments and funds.

Most trading done by Goldman is not speculative, but rather an attempt to profit from bid-ask spreads in the process of acting as a market maker. On average, around 68 percent of Goldman's revenues and profits are derived from trading.

Asset management and securities services

As the name suggests, the firm's Asset Management and Securities Services segment is divided into two components: Asset Management and Securities Services. The Asset Management division provides investment advisory and financial planning services and offers investment products primarily through separately managed accounts and commingled vehicles across all major asset classes to a diverse group of institutions and individuals worldwide. The unit primarily generates revenues in the form of management and incentive fees. The Securities Services division provides clearing, financing, custody, securities lending, and reporting services to institutional clients, including hedge funds, mutual funds, and pension funds. The division generates revenues primarily in the form of interest rate spreads or fees.

Company Profile

The Goldman Sachs Group, Inc. Type: Traded as: Public NYSE: GS S&P 500 Component Industry: Founded: Founder(s): Banking, Financial Services 1869 Marcus Goldman, Samuel Sachs Headquarters: 200 West Street, New York, New York, U.S. Area served: Key people: Worldwide Lloyd Blankfein (Chairman & CEO) Gary Cohn (President & COO) David Viniar (Executive VP & CFO) Products: Asset management,commercial banking,commodities, investment banking, investment management, mutual funds,prime brokerage Website: GoldmanSachs.com

Mergers and Acquisitions

Goldman Sachs did the most deals outside the Americas among the top five advisers on global takeovers and equity offerings, according to Bloomberg data. Half of the New York-based banks takeover assignments involved a target in Europe, the Middle East, Africa or Asia, while 59 percent of its equity deals were from those

regions, the data show. The rankings are based on the total dollar value of the transactions.

The success of Goldman Sachss investment bankers hasnt been enough to stem a decline in the firms stock and profit this year. The bank reported a loss in the third quarter, only its second in more than 12 years as a public company, because of writedowns on assets. Profit for the first nine months declined 43 percent from a year ago. The stock has dropped 46 percent to $90.10, a discount to Goldman Sachss tangible book value of $120.41 per share at the end of September.

Fees from takeover advice and equity offerings have contributed 11 percent of revenue this year, dwarfed by the 62 percent provided by trading. The firms investment portfolio, which holds equity, debt, real estate and stakes in privateequity funds, produced 77 percent less revenue during the first nine months compared with the same period in 2010.

About Mr. Rajat Gupta

Mr Gupta, a native of Kolkata, India, was orphaned as a teenager. After earning an engineering degree, Mr Gupta moved to the United States after receving a scholarship to Harvard Business School. He then landed a job at McKinsey, the elite management-consulting firm. In 1994, at age of 45, Mr Gupta was elected the global head of McKinsey, the first non-American-born executive to run the firm.

In 2007, after nearly four decades of dispensing business wisdom to corporate chieftains and government leaders, Mr Gupta retired from McKinsey and became highly sought after as a public-company director. He joined the boards of some of the world's most well-known companies, including Goldman and Procter & Gamble.

In recent years, Mr Gupta had also devoted much of his time to humanitarian causes, raising millions of dollars to combat AIDS, tuberculosis and malaria. He served as an adviser to both the Bill and Melinda Gates Foundation and the Clinton Global Health Initiative. When President Obama hosted his first White House state dinner in 2009, honouring a visit by India's Prime Minister, Mr Gupta was on the guest list.

About the Scam

Rajat K Gupta, the retired head of the consulting firm McKinsey & Company and a former Goldman Sachs board member, was found guilty of conspiracy and securities fraud. He was the most prominent business executive convicted in a wave of prosecutions that followed the government's sweeping investigation into trading on Wall-Street.

The insider-trading conviction of Rajat Gupta had federal prosecutors and securities regulators glowing with happiness. But companies face stiff challenges protecting their boards from breaches confidentiality by directors and the reputational and other damages that ensue. The conviction also draws a contrast with the relative lack of high-level prosecutions stemming from the 2008 financial crisis, which analysts said was rooted in practices harder to establish a case on. A Manhattan federal court jury on Friday found Gupta, guilty of leaking material non-public information on Goldman to Raj Rajaratnam, head of the Galleon hedge fund group. Gupta was convicted of conspiracy to commit securities fraud and three counts of tipping Rajaratnam about Goldman, but was acquitted of leaking information on P&G, and of one Goldman-related count.

Gupta faces up to five years in prison on the conspiracy charge and up to 20 years on each of the fraud charges when federal judge Jed Rakoff sentences him, which is scheduled for October 18. Rajaratnam is serving an 11-year prison sentence.

The evidence showed that Gupta called Rajaratnam within about 60 seconds of a Goldman board meeting approving a $5 billion investment by Berkshire Hathaway and within 23 seconds of learning that Goldman was facing its first quarterly loss as a public company. The first call resulted in significant gains by Rajaratnams funds and the second call avoided millions of dollars in losses.

The outcome in Mr Gupta's trial was a substantial victory for the government. There had been a big question mark whether prosecutors could win a case built largely on circumstantial evidence - phone records and trading logs -of the defendant's guilt. No witness testified to the contents of any calls between Mr Gupta and Mr Rajaratnam. The case lacked the dozens of incriminating wiretaps that prosecutors played at Mr. Rajaratnams trial.

Reasons for the fraud

Mr Gupta's alleged illegal conduct started after he retired from McKinsey. In 2007, Mr Gupta left behind the staid world of management consulting and turned his focus to Wall-Street.

It was then that Mr Gupta fell in with Mr Rajaratnam, who he originally met through philanthropic activities. At the time, Mr Rajaratnam, a Sri Lankan native, was at the peak of his powers, a billionaire hedge fund manager with a superior investment track record. For Mr Gupta, who wanted to raise his profile in the lucrative world of money management, Mr Rajaratnam was a top notch connection. Together, the two helped start a private equity firm, New Silk Route, which made investments in India. Mr Gupta invested at least $13 million in Galleon hedge funds

and took on a fund-raising role at the firm. He accepted an advisory post at the investment giant Kohlberg Kravis Roberts & Company that promised to pay him millions of dollars a year. He told a colleague that he was raising money for a telecom fund with financial backing from AT&T.

During a telephone conversation between Mr Rajaratnam and Anil Kumar, a former McKinsey executive who has pleaded guilty to insider trading, the two gossiped about Mr Gupta ambitions to make more money, focusing on his job at KKR, a position that might have forced him to resign from Goldman's board because of conflicts.

What could have been done to prevent scam?

The verdict indeed warns corporate officers and directors to not commit securities fraud, which addressed guidance to boards on how to protect themselves against insiders sharing boardroom or executive suite secrets. Companies have fewer tools than enforcement authorities.

The insider trading-related violation that Mr. Gupta is alleged to have engaged in, tipping outsiders with information he gathered in his role as director, is particularly difficult for an issuer to prevent. The tools the government used in this instance bugged conversations and informants helped make the case against Mr. Gupta. These are not tools ordinarily at an issuers disposal. If the insider does not personally trade on information, there may be little that boards can do to prevent a director from tipping off an associate.

It is very difficult to monitor a directors phone calls and communications. The directors are not usually employees, and if they decide they want to share inside information, there is little the company can do to stop them. Using insider information, however, is a different story. Companies should monitor trading by their

directors and insiders and be on the lookout for any unusual trading in advance of any corporate announcements. Companies need to review their policies in light of the Gupta case.

Boards should re-double their efforts in the area of insider-sharing prevention and detection, and be held to account where red flags have been ignored.

Boards will need to spend more time on determining potential conflicts and examining the potentially problematic relationship of their board members. But it should be noted strongly that no review system or conflict check will fully deter people motivated to commit disclosing material information. Independent directors should be asking their boards to review existing director and officers policies and understand that coverage in the event a director is found to have breached his or her fiduciary duties to the company.

Solutions:
Board of directors must impose stricter and effective policies inorder to prevent these scams, the punishment should be such that heavy imposition of fine as well as conviction for longer period. Encourage whistle-blower policy in the company and also the safety and reward for the whistle-blower so that the person will think twice before doing any wrong stuffs which will affect the image of the company.

Bibliography

http://www.bloomberg.com/news/2011-12-19/goldman-sachs-winning-ceosas-global-no-1-with-m-a-equity-deals.html http://timesofindia.indiatimes.com/business/international-business/FormerMcKinsey-chief-and-Goldman-Sachs-director-Rajat-Gupta-convicted-ofinsider-trading/articleshow/14154575.cms

http://www.dailymail.co.uk/news/article-2159945/Rajat-Gupta-trial-FormerGoldman-Sachs-director-GUILTY-insider-trading-largest-hedge-fund-fraudcase.html#ixzz20IiTzsHC

http://www.thedailybeast.com/articles/2012/06/15/rajat-gupta-was-foundguilty-of-insider-trading-in-less-than-a-day.html