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Fraud*
According to the Collins English Dictionary 10th Edition fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage".[1] In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain
*As defined in Wikipedia

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Thursday, November 22, 2012

Goldman Sachs: the Bystander That Does Nothing Except Collect Its Fees

In a bullying scenario there are three different participants:  one is the person doing the bullying; another is the person who is the victim of the bullying; and the third are the bystanders who do nothing but watch the bullying. 

Corruption shares a lot in common with aspects of bullying.  Take the case of Autonomy Corporation, a British software company, who asked Goldman Sachs and others to advise them during their sale to Hewlett-Packard.

After the sale, HP had to write down billions in lost money because of banking "irregularities" within Autonomy and because of the weaknesses of its product line.  There had been warning signs about these "misrepresentations" from various doubters plus from researchers who pointed out the red flags they had found.  This research was available to Goldman Sachs, one of the brokers for the sale, but Goldman had nothing but positive things to say about the company it advised even after having spoken to the analyst who was warning about difficulties.

So we have Autonomy Corporation bullying the analysts and preventing them from sharing their negative findings; then we have the "victim," HP, whose stock and shareholders suffer from write-downs; and the group of bystanders, which includes Goldman Sachs, gives only positive feedback and does not act on the "irregularities."  Of course, Goldman obtained very good fees for its advisory role.  Seems like another conflict of interest raises its ugly head here.

So how many ways can you say "accounting control fraud" after having read articles about this story?  The euphemisms include: "irregularities," "misrepresentation," "improprieties," and "misleading accounts."  Part of the problem with corruption is that, if you do not have distinct and unassailable definitions and laws defining fraud, you need do nothing to prevent it.  That is how corruption continues apace in the financial system today.
UBS and Goldman Sachs had access to negative Autonomy research
Leading City analyst says both banks had access to research about alleged banking irregularities at UK software firm
By Juliette Garside - The Guardian

UBS was brought in by Autonomy with Goldman Sachs as second tier advisers for the company's sale to Hewlett-Packard.  UBS and Goldman Sachs, two of the banks that advised Autonomy on its disastrous sale to Hewlett-Packard, had access to research about the alleged accounting irregularities at Britain's largest software company before the deal was negotiated – a transaction that has wiped $8.8bn (£5.5bn) from the US company's balance sheet over the last couple of days.
 
Paul Morland, a leading City analyst who started raising red flags about exaggerated performance claims at Autonomy as early as 2009 and has been one of the company's most vocal critics, said both banks had access to his research which was widely circulated at the time.

It is understood that both banks requested meetings with Morland, with Goldman Sachs seeking advice prior to winning a role as Autonomy's broker in June, a role which it held jointly with UBS and Citigroup.

"The banks must have concluded that my research findings were not negative enough not to take on the mandate," said Morland. "You can understand why they came to that conclusion when they had Mike Lynch [co-founder of Autonomy] telling them one thing and me telling them another."
None of the 15 different financial, legal and accounting firms involved on both sides of the transaction publicly raised concerns about Autonomy's books. The company's lead adviser was US firm Qatalyst Partners, while UBS and Goldman Sachs were brought in as second tier advisers days before HP's $10.3bn offer for Autonomy last year. Both UBS and Goldmans [sic] declined to comment.

Read the full article here

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