Goldman's Luster May Be Fading

eToys Story

One company that Goldman brought to market -- eToys -- has since sued the company, saying it incurred "hundreds of millions of dollars in damages and eventually had to declare bankruptcy as a result of Goldman Sachs' illegal conduct in underpricing the IPO and in receiving kickbacks."

On Goldman Sachs' recommendation, the IPO was priced at $20 a share, which eToys said was substantially lower than market conditions warranted given the high demand for its shares.

The company alleges that Goldman deliberately underpriced the shares because it had entered into unlawful arrangements with its customers, who gave kickbacks to Goldman when the shares soared in the aftermarket.

Even up until this year, Goldman had engaged in some unpalatable dealings.

Consider Tesoro Petroleum(TSO Quote). Analyst Arjun Murti put the stock on the firm's recommend list on Jan. 8, just six weeks before Goldman would be named as a co-manager on a $245 million secondary stock offering for the Texas-based oil refiner.

At the time, the stock was trading for about $13 and Murti said it was "poised for a major breakout." It subsequently plunged in value, prompting Murti to reduce his rating to market outperformer. Tesoro now trades for about $2.