Greg Smith, Goldman Sachs’ head of equity derivatives business in Europe, the Middle East and Africa wrote a scathing op-ed in the New York Times on Wednesday as part of his resignation, saying the firm has lost its way and is ripping off its clients.
Smith, who worked at the investment bank for nearly 12 years, detailed why he was resigning, calling the company’s environment “as toxic and destructive as I have ever seen it,” and over the last 12 months, he has seen five different managing directors “refer to their own clients as ‘Muppets,’ sometimes over internal e-mail.”
The op-ed echoed previous accusations in 2010 that Goldman Sachs traded against clients by profiting off securitized subprime home mortgages while betting against the housing market. Last month, the Securities and Exchange Commission said it was investigating a 2006 subprime mortgage bond deal.
In response, Goldman Sachs’ CEO Lloyd Blankfein and chief operating officer Gary Cohn sent an internal memo to employees, saying “we were disappointed to read the assertions made by this individual that do not reflect our values, our culture and how the vast majority of people at Goldman Sachs think about the firm and the work it does on behalf of our clients.”
Steven Leslie, managing editor of the Economist Intelligence Unit’s Financial Services Briefing, said Smith said in a very public way what many have noted in private or quieter ways. Leslie said there are numerous cases in which Goldman has appeared to be cavalier about its clients and led the firm into legal and regulatory hot water, most notably in 2010 when it paid $550 million to settle charges from the SEC that it misled investors.
Smith cited pressure to “execute on the firm’s ‘axes’” — persuading clients to buy what the firm is trying to “get rid of because they are not seen as having a lot of potential profit.” The other key is to ”hunt elephants” or induce clients “to trade whatever will bring the biggest profit to Goldman.”
“To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.”
Goldman Sachs spokesperson, David Wells, declined to comment on whether the company planned to fill Smith’s position and provided the following statement: ”We disagree with the views expressed, which we don’t think reflect the way we run our business. In our view, we will only be successful if our clients are successful. This fundamental truth lies at the heart of how we conduct ourselves.”
Smith said he managed the sales and trading summer intern program in 2006, but he “knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work.”
Previously, he said he had “pride” in the company but he wrote “I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years.”
“Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence,” he wrote.
ABC News’ Zunaira Zaki contributed to this report.