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It seems Goldman Sachs may have a history of conflict of interest
(which always worked in their favour) and the
Abacus scandal may be only a recent case.
This story from Ghana details how Goldman Sachs first talked black-owned gold
miner Ashanti into a hedge book in 1999 and after Ashanti bled out, it was
sold to Anglogold. Goldman Sachs was adviser to all
parties.
From Ghanaweb:
In 1998, Ashanti Gold was the 3rd largest Gold Mining company in the
world. The first "black" company on the London Stock Exchange,
Ashanti had just purchased the Geita mine in
Tanzania, positioning Ashanti to become even larger. But in May 1999, the
Treasury of the United Kingdom decided to sell off 415 tons of its gold
reserves. With all that gold flooding the world market, the price of gold
began to decline. By August 1999, the price of gold had fallen to $252/ounce,
the lowest it had been in 20 years.
Ashanti turned to its Financial Advisors - Goldman Sachs - for advice.
Goldman Sachs recommended that Ashanti purchase enormous hedge contracts -
"bets" on the price of gold.
But Goldman was more than just Ashanti's advisors. They were also
sellers of these Hedge contracts, and stood to make money simply by selling
them. And they were also world-wide sellers of Gold itself.
In September 1999 (one month later), 15 European Banks with whom Goldman
had professional relationships made a unanimous surprise announcement that
all 15 would reduce selling gold on world markets for 5 years. The
announcement immediately drove up gold prices to $307/ounce, and by October
6, it had risen to $362/ounce.
Ashanti was in trouble. At Goldman's advice, they had bet that gold
prices would continue to drop, and had entered into contracts to sell gold at
lower prices. These contracts were held by a group of 17 other world banks.
Ashanti found themselves being forced to buy gold at high world prices and
sell it at the low contract prices to make good on the contracts. The result?
In a few weeks time, Ashanti found itself with 570 million dollars worth of
losses. It had to beg the 17 banks not to force the execution of the
contracts.
Who served as the negotiator for the 17 banks and Ashanti? Goldman
Sachs. The same company that designed the contracts for Ashanti(making
a profit in their sale.)
The bankruptcy of Ashanti drove its stock price from an all time high
of $25 per share to a paltry $4.62 per share. Thousands of investors - your
blogger among them - lost their investments almost overnight as Ashanti was
declared insolvent.
In the end (2003), Ashanti was purchased by their largest African
competitor, AngloGold, a British company headquartered in South Africa, who
bought them for a song. The Financial Advisors to AngloGold? You guessed it:
Goldman Sachs.
The destruction of Ashanti Gold by Goldman Sachs was saturated with
fraud and conflicts of interest: Goldman Sachs served as Ashanti's Financial
Advisors; profitted form the contracts they
designed and marketed for Ashanti; was involved in the manipulation of the
gold prices on which the contracts depended; represented Ashanti's creditors
when the contracts went bad; and profitted as the
Financial Advisors to the company that picked up the Ashanti corpse for
pennies on the dollar.
I presume the Goldman Story will hold more conflicts of interest and
look for ward to CEO Lloyd Blankfein hearing
on Capitol Hill later today.
Toni Straka
Editor,
the Prudent Investor
Toni Straka
is an INDEPENDENT
Certified Financial Analyst (OeVFA, EFFAS) who
worked as a financial journalist for 15+ years and now evaluates global
market trends. Analyzing financial and political news permanently he wants to
share his insight with those who understand that we are in an era of global
redistribution of wealth. The US-European centric approach does not work
anymore. Five billion people in the developing countries now demand their
fair share of the world's resources.
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