Saturday, March 28, 2009

Goldman Sachs bails out executives

The financial giant Goldman Sachs spent tens of millions of dollars to bail out two senior executives last fall who were short on cash, according to the bank’s proxy statement filed on Friday.

In an unusual move, Goldman bought back stakes in some internal investment funds from Jon Winkelried, the bank’s co-chief operating officer, and Gregory K. Palm, its general counsel.

Both executives are among the largest shareholders in the bank, owning more than a million shares each, and directors were concerned that a large sale of Goldman shares by the two men would alarm investors during a period of market turmoil, according to a person briefed on the matter.

To avoid the stock sales, Goldman paid Mr. Winkelried, who retired last month, $19.7 million to purchase about 30 percent of his investments in internal hedge funds and private equity investments.

The bank paid $38.3 million to Mr. Palm for about a quarter of his investments.

Goldman Sachs is forbidden to extend loans to executives such as Mr Winkelried or Mr Palm because of the Sarbanes-Oxley Act. Either man could have raised cash by selling stock, but such sales by executives would have had to be disclosed to the market.

“In the fall of 2008, the firm purchased interests in certain hedge funds and private equity funds from Jon Winkelried and Greg Palm,” said a spokesman for the firm.

“Stock sales would easily have covered their requirements but, given the turbulent market conditions, we and they were concerned that such sales would be misconstrued by the market as indicating a lack of confidence in Goldman Sachs.”

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