Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Why Did Goldman Sachs' CEO Hire Outside Counsel?

Lloyd Blankfein, CEO of Goldman Sachs Group, Inc. participates in a Financial Crisis Inquiry Commission hearing on Capitol Hill on January 13, 2010 in Washington, DC.
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The news that Goldman Sachs chief executive Lloyd Blankfein likely means that at least one of the government inquiries into Goldman is advancing. And it may indicate that Blankfein himself faces potential legal liability.

"If Blankfein hired him in a personal capacity, it means that his interests and Goldman's have diverged. That's bad news for one of them," a well-known criminal defense attorney in Washington who is not involved with the case told me.

Earlier this year, Goldman was accused of possibly misleading a Senate panel that looked into the financial crisis. Executives from Goldman, including Blankfein, testified that their short positions on the U.S. housing market were hedges against long positions. The company was not "net short" the housing market, the executives said. Other evidence indicated that Goldman was net short. The chairman of the Senate investigations panel referred the case to the Justice Department for possible perjury charges against the Goldman executives, although he later softened his accusations.

As I pointed out in April, there seems to have been a dispute within Goldman about the character of the firm's short positions. Blankfein and other top executives are convinced that they were hedging other exposure. But the traders putting on the positions saw themselves as making a heroic market call.

Blankfein Hires Defense Attorney

The attorney I spoke with said that it could mean that Blankfein has reason to believe he could personally be a defendant in a civil or criminal case. It could also simply mean that the potential for a conflict of interest has arisen, causing the company's lawyers to advise Blankfein to seek separate counsel.

A statement issued by Goldman Sachs stated "As is common in such situations, Mr Blankfein and other individuals who were expected to be interviewed in connection with the Justice Department’s inquiry into certain matters raised in the PSI report, hired counsel at the outset.”

Blankfein has not been charged with any wrongdoing.


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