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Ever since

Goldman Sachs

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Chairman Henry Paulson gave a speech a few weeks ago, decrying the ethics of corporate America, many in the news media have been ready to all but bestow sainthood on him.

Yet, as important as that speech may have been, it's worth remembering that Paulson's firm isn't completely immune to the kind of stock hyping allegations that are now dogging other Wall Street firms -- especially ones that do both investment banking and stock analysis. That's something investors might want to keep in mind this week, considering Goldman is slated to take to market three initial public offerings that could raise more than $2 billion.

An example of how appearances can turn fishy when a Wall Street firm both underwrites stock offerings and issues ratings on those stocks is the case of

Tesoro Petroleum


. Goldman analyst Arjun Murti began covering Tesoro 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. Back in January, with Tesoro shares trading around $13, Murti initiated coverage of Tesoro by putting it on Goldman's "Recommend List," the firm's top buy rating.

In a research note to Goldman clients, Murti stated Tesoro was "poised for a major breakout" and primed to do a series of acquisitions that would elevate it to the major leagues or petroleum refiners. Murti mentioned the possibility that Tesoro might sell additional stock as one way to finance some acquisitions, including a possible deal for

Valero Energy's

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Golden Eagle refinery. There was no mention in the Jan. 8 report that Goldman itself might eventually lend a hand in a secondary stock offering for Tesoro.

But ever since Murti and Goldman started coverage of Tesoro, the stock has been slip-sliding away. The stock has been cut nearly in half and is trading now at just over $7 a share.

Now, in recent weeks, Murti has soured some on Tesoro. On May 6, he reduced his rating to market outperformer. But that downgrade came only after Tesoro already had lost 31% of its value, the company completed the $245 million secondary offering on March 6, and Tesoro inked a tentative deal to buy Golden Eagle for $945 million. That transaction officially closed on May 17.

Meanwhile, just four days before the downgrade, Murti was still vigorously defending the stock. In a May 2 research note, he urged investors not to sell -- even though four other Wall Street firms already had lowered their ratings -- saying: "We consider our Recommend List rating on Tesoro as the sell-side equivalent of actually owning the stock, and at current price levels, we would not sell the shares," Murti wrote in a May 2 research note.

Murti declines to discuss his coverage of Tesoro. But Goldman spokesman Ed Canaday says, "there is no connection between the timing of the downgrade and the March secondary." He says Murti decided to downgrade the stock only after it became clear that operating margins in the refinery business were coming under immense pressure and Tesoro would not perform as well as had been expected.

"It looked like the refining cycle was turning," says Canaday. "It wasn't until the beginning of April and May that margins collapsed and caused Tesoro's situation to deteriorate."

In fairness, Goldman is hardly the only Wall Street firm with investment banking ties to Tesoro that's been overly bullish on the stock. A petroleum analyst for

Lehman Brothers


, who has been Tesoro's primary investment banker for many years, has maintained a strong buy rating on the stock since last August, according to Thomson Financial/First Call.

Lehman, in fact, was the lead manager on the March secondary offering and responsible for distributing and selling more than two-thirds of the 23 million shares issued by Tesoro. Paul Cheng, the Lehman analyst who covers Tesoro, could not be reached for comment.

And, of course, there's nothing new in a bullish analyst waiting until well after a stock plunges to reverse course and downgrade the shares. For instance, 10 of the 14 equity analysts who followed Enron kept recommending the stock even as the energy-trading firm was racing toward bankruptcy last fall.

But Jonathan Kord Lagemann, a New York securities lawyer and former general counsel for a small brokerage firm, says Wall Street will have a tough time winning back the wallets of individual investors, if investment firms continue with the same old pattern of issuing bullish stock calls on companies that also end up being investment banking clients. He says it's situations like the one with Tesoro and Goldman that have a lot of investors asking themselves: "Who can you trust on Wall Street?"