Et tu, Goldman Sachs?

A congressional committee reports that

Goldman Sachs

(GS) - Get Report

-- 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


Chairman Kenneth Lay;


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CEO Margaret Whitman; Edward Lenk, former chief executive of


; and Dennis Kozlowski, the former



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


, 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."

Dirty Secrets

But rather than coming as a shock, the congressional report about Goldman's IPO secrets merely confirms what many have been saying all along about one of Wall Street's more tawdry business practices: Everyone does it to some extent.

Indeed, few thought the practice of doling out hot IPO shares to corporate executives as a way of gaining investment banking work was limited to


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Salomon Smith Barney.

Yes, Citi's IPO practices have generated the most of the recent headlines. But to some extent, Salomon became an easy target for securities regulators because it allocated so many IPO shares to executives in the telecom industry -- a sector of the market that has imploded and left investors with gaping holes in their stock portfolios.

But the committee report confirms that when it came to spinning and spreading around IPO shares, Goldman was not much better than Salomon and

Credit Suisse First Boston

. In fact, if the committee hadn't limited its inquiry to those three firms, it's likely that similar IPO abuses would have been found at other Wall Street firms.

"Most of what's disclosed in this report, most veterans on Wall Street have known for years," said Bill Singer, a New York securities lawyer.

For its part, Goldman disputes the findings of the committee's report, calling it "an egregious distortion of facts." A firm spokesman says, "banking clients did not receive favored treatment."

Nonsmoking Guns

And truth be told, there's little in the report to substantiate a claim that there was an actual quid pro quo between Goldman and the corporate executives receiving IPO shares. If anything, the committee report contains a lot fewer smoking guns than the information it released last month about Salomon's IPO allocation practices. It also appears the committee, for whatever reason, chose not to identify all of the executives who got shares from Goldman. A representative in Oxley's office didn't comment.

But right now you don't need a smoking gun to convict a Wall Street firm in the court of public opinion. Given the wave of corporate scandals and the controversy over Wall Street's many conflicts of interest, a whiff of impropriety or unfair dealing is more than enough to get the regulators and plaintiffs' lawyers busy.

And that's why after years of relative inaction on the spinning issue, securities regulators are finally coming together to tackle the matter.

Just today, the nation's leading securities regulators announced they are joining forces to craft a wide-ranging settlement of the many ethical and regulatory issues that have been dogging Wall Street, including the allocation of IPO shares.

In keeping with the newfound spirit of regulatory harmony, the

National Association of Securities Dealers

and the

New York Stock Exchange

also announced that they are creating a 10-person IPO advisory committee to propose new rules and reforms for the entire IPO process. The committee, led by Geoffrey Bible, former chairman and chief executive of

Philip Morris

, includes business professors, industry professionals and corporate attorneys.

This united approach means that rather than competing for headlines and sound bites, New York Attorney General Eliot Spitzer and

Securities and Exchange Commission

Chairman Harvey Pitt

now will be working from the same script.

But right now, it pretty much remains a blank script. The joint statement from Spitzer and Pitt offers few clues about how they intend to address the spinning -- much less the issue of how to separate stock research from investment banking activity. All the statement promises is that "changes will be made in a rational and principled matter."

The statement doesn't address the fate of a novel lawsuit Spitzer filed earlier this week, which seeks to recoup the $28 million in profits that five telecom executives, including former


Chairman Bernard Ebbers, reaped from investing in Salomon-led IPO.

Citigroup, sources say, was not included as a defendant in the lawsuit because Spitzer didn't want to poison the talks with Pitt about formulating a common regulatory approach.

Muddy Waters

But now that's there's an agreement between the two regulators to work together, does that mean Spitzer will hold off permanently on naming Citi as a defendant? Does that mean Goldman, CSFB and other Wall Street firms also have nothing to fear from Spitzer while the talks between the regulators continue.

A Spitzer spokesman declined to comment.

The common plan of action, meanwhile, also doesn't address a NASD proposal that would expressly prohibit Wall Street firms from engaging in spinning. The proposed regulation makes it clear that IPOs should not be used as a potential lure for reeling in new investment banking clients.

Again, it's not known whether Pitt and Spitzer intend to go beyond what the NASD is proposing, or simply adopt it.

It's worth noting, however, that some state securities regulators think the NASD proposal does nothing more than restate the current law. The North American Securities Administrators Association, in a recent letter to the NASD, notes that the proposal prohibits conduct that already is "unlawful as fraud under both the state and federal securities laws."

If that's the case, then it seems Pitt and Spitzer will have to come up with something a lot tougher than what the NASD is proposing if they really want to change the way Wall Street does business.