Goldman Flap Puts Feds Back in Spotlight

Et tu, Goldman Sachs?

A congressional committee reports that Goldman Sachs (GS) -- the self-described creme de la creme of investment banks -- doled out shares in hot initial public offerings to executives and directors at 21 investment banking clients. The committee, chaired by Republican Rep. Michael Oxley of Ohio, concludes that the evidence "shows preferred investors profited unfairly."

The firm takes issue with the findings, saying that it doesn't treat some clients better than others. But despite the outrage on both sides, longtime Wall Street watchers say they're hardly shocked by accounts of the practice, which many take as a given in a highly competitive business.

Now, the back-and-forth over the committee's findings only adds to the pressure building on regulators and legislators to find a way to clean up Wall Street's act. Yet despite a flurry of press releases and the creation of a high-profile IPO review committee, it's not entirely clear from Thursday's events that the watchdogs are up to the task just yet.

Spin Move

The report by the House Financial Services Committee concludes that Goldman engaged in a practice that's known on the Street as "spinning," in which executives are offered a chance to invest in a hot IPO and make a quick buck, as "an inducement or reward for investment banking business."

Among those found feeding at the Goldman IPO trough were former Enron Chairman Kenneth Lay; eBay(EBAY) CEO Margaret Whitman; Edward Lenk, former chief executive of eToys; and Dennis Kozlowski, the former Tyco(TYC) chief who has been indicted on tax-evasion charges. The firm underwrote the stock offerings for eBay and the now-defunct online retailer eToys.

Another IPO recipient was Martin Peretz, a director of TheStreet.com(TSCM), publisher of this Web site, and editor of The New Republic magazine. Goldman was the lead underwriter on TheStreet's 1999 IPO. Peretz said: "This is all an invention. It is mortifying to be lumped in with those who got hot IPOs as a reward for doing business with any brokerage house."