Updated with quote from Goldman Sachs's memo to employees.



) --

Goldman Sachs

(GS) - Get Report

can't escape its

vampire squid reputation.

The investment bank has been often accused of routinely acting against its clients' interest, which it has vehemently denied.

But on Wednesday, the bank came under attack from an unexpected source. In a

New York Times


, Greg Smith, an executive director at Goldman Sachs and head of the firm's United States equity derivatives business in Europe, Middle East and Africa, tendered his resignation, citing a "toxic and destructive" culture of putting money first before clients.

Smith, who says he worked for the firm for 12 years ever since he was accepted as a summer intern while at Stanford, said "the firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for," said in what appears to have been a "Jerry Macguire" moment.

He accused CEO Lloyd Blankfein and President Gary Cohn for the "decline in the moral fiber" of the company. Goldman had become a place where leaders were chosen based on how their ability to persuade clients to invest in products the firm was trying to get rid of, or products that just brought the maximum profit to the bank or trading some "illiquid, opaque product with a three-letter acronym."

Directors referred to clients as "muppets" and meetings focused on making money off clients. "You don't have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about "muppets," "ripping eyeballs out" and "getting paid" doesn't exactly turn into a model citizen," he wrote.

"We disagree with the views expressed, which we don't think reflect the way we run our business," said Michael DuVally, a spokesperson for Goldman Sachs. "In our view, we will only be successful if our clients are successful. This fundamental truth lies at the heart of how we conduct ourselves."

Blankfein and Cohn also responded to the article in a memo to employees. "Needless to say, we were disappointed to read the assertions made by this individual that do not reflect our values, our culture and how the vast majority of people at Goldman Sachs think about the firm and the work it does on behalf of our clients," they wrote. "We are far from perfect, but where the firm has seen a problem, we've responded to it seriously and substantively. And we have demonstrated that fact."

Still, the article was viral on social media networks, with the comments on twitter reflecting both a certain amount of skepticism over the article and a general disdain for Goldman Sachs' culture.

"Is anyone actually surprised by this $GS piece? did you think they were in it for good kharma and warm fuzzies??", one tweep said.

"$GS Tell us something that we did not know. This op-ed revealed nothing new to anyone on the street," said another.

The fact that no one is surprised by the revelations in the article shows just how much damage has been done to Goldman's reputation in the last few years.

Since the sub-prime crisis, there have been a series of articles questioning the investment bank's practices of "betting against the client", although Goldman has only said it was hedging its risk.

Here are three most notable instances in recent history.

3. Goldman Sachs' Profitable Loan to Greece

In 2001, Goldman Sachs entered into a derivative transaction with Greece that helped the company manage to meet the conditions of the Maastricht Treaty even though it was deeply debt-burdened. Goldman ended up making an enormous amount of money from the deal, but it proved to be a costly mistake for Greece, as two senior officials admitted recently to


The Goldman Sachs transaction swapped debt issued by Greece in dollars and yen for euros using an historical exchange rate, a mechanism that implied a reduction in debt, according to a


report. It also used an off-market interest-rate swap to repay the loan. But the size and complexity of the deal was such that Goldman charged disproportionately high trading fees than for deals of a more standard size, the report said.

The actual size of the loan was 2.8 billion euros but had a teaser rate or a three-year grace period after which Greece had 15 years to repay the debt. Later, following the 9/11 attacks when bond yields fell, Greece realized just how bad its bet actually was.

" "If you calculated that when we did it, it looked very nice because the yield curve had a certain shape, ," Christoforos Sardelis, who oversaw the swap as head of Greece's Public Debt Management Agency from 1999 through 2004, said in an interview to Bloomberg. "But after Sept. 11, we realized this would be the wrong formula."

Greece went back to Goldman to change the formula but the revised model backfired further on the country. The revised deal proposed by the bank and executed in 2002, was to base repayments on what was then a new kind of derivative -- an inflation swap linked to the euro-area harmonized index of consumer prices.

But Greece winded up losing a further 5.1 billion euros after bond yields fell further."The Goldman Sachs deal is a very sexy story between two sinners," Sardelis told Bloomberg.

2. Goldman Sachs El Paso "Disturbing" Deal

Goldman Sachs' dark side was once again revealed when it acted as an adviser to

El Paso


in its sale to

Kinder Morgan

(KMI) - Get Report


Shortly after the October sale was announced, a group of pension fund investors in El Paso sued the company on the sale process. Their contention was that El Paso's financial adviser Goldman Sachs had an economic interest to not fetch the highest price possible, an obvious sin in the M&A game.

Through its private equity arm, Goldman Sachs has a 19% stake in Kinder Morgan, holding two board seats.

Delaware Chancery Court Judge Leo Strine said negotiations were muddied by "conflicts of interest," "disturbing behavior" and "disloyalty," but did not block the deal.

Goldman's lead investment banker on the deal, Steven Daniel, may have also had a personal conflict in not finding a high priced bid for El Paso because of a $340,000 holding in Kinder Morgan's stock, according to lawsuit.

Goldman Sachs said that it and El Paso took "reasonable measures" to address potential conflicts. "We are pleased that shareholders will get to vote on the merger. We respect the judge's opinion but want to be clear that we stood by our client through this process, encouraging them to get independent views from another adviser," a Goldman spokesman said. "We were also transparent with El Paso about our relationship with Kinder Morgan and the related issues."

For more on the deal, read

'Disturbing' Deal Reveals Goldman Sachs Conflicts

1. Goldman Sachs' Subprime Bet

Goldman Sachs'

most famously reported transgression is the "ABACUS 2007-AC1." The transaction related to a "synthetic" collateralized debt obligation, which allowed the hedge fund Paulson & Co to make a bearish bet on the subprime housing market.

But the SEC, in a complaint, alleged that Paulson had a role in selecting the securities of the deal and that Goldman failed to disclose his role to investors who were on the other side of the deal.

Paulson denied its "authority" in selecting the securities, and while Goldman admitted to having discussions with Paulson about the securities, it characterized those talks as "entirely typical of these types of transactions." The firm offered a muscular defense, contradicting most items in the SEC's case.

While the SEC pointed out that Goldman earned a $15 million fee from Paulson, the investment bank says it lost $90 million on the deal. Goldman also said its disclosures to long investors were "extensive" and appropriate.

But "fabulous" Fabrice Tourre did not help the investment bank's case. The SEC's complaint pointed to some scandalous e-mails from Tourre in early 2007 indicating that he believed the housing market was about to implode.

Goldman Sachs ended up paying $550 million to the SEC to settle civil charges and admitted that its marketing materials for the synthetic CDO in question "contained incomplete information."

--Written by Shanthi Bharatwaj in New York

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Shanthi Bharatwaj


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