Goldman Sachs’s Shell Game

Goldman Sachs’s Shell Game
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The mega-bank has created 61 different off-balance-sheet corporations with help from companies based in the Cayman Islands. That looks in no way shady!

Tyson Slocum has embarked on a crusade the past few months that would make I.F. Stone jealous. The director of Public Citizen’s Energy Program has stumbled into some genuinely novel evidence about how mega-banks cloak their entry into commodity markets.

First, Slocum found associations between JPMorgan Chase and an allegedly non-affiliated entity buying a power station in El Paso, Texas, links that the bank would eventually acknowledge. But Slocum’s discovery regarding Goldman Sachs seems even more revelatory. The banking giant has set up at least 61 different off-balance-sheet entities controlling various investment assets, all of which have the same three-member panel of “independent” directors.

The directors were all leased from “rent-a-director” firms based in the Cayman Islands, a notorious tax haven. “They’re almost like a dating site, choose your director,” says Slocum, who is protesting one of the entities as it requests regulatory approvals at the Federal Energy Regulatory Commission (FERC).

These transparently affiliated shell corporations enable Goldman Sachs to avoid FERC limitations on sales of electric power, bank regulatory requirements around participating in pooled investment funds, merchant banking restrictions, and requirements to add capital in case of losses. “Goldman Sachs has enormous financial and regulatory incentives to keep these entities off the books,” Slocum says. The sham directors fulfill corporate governance rules without having to put the fate of the shell companies in the hands of anyone with independent thought. In other words, it’s a useful and lucrative fiction, manipulating the securities laws to conceal the truth.

Through a spokesperson, Goldman Sachs declined to comment.

THE TRIGGER POINT for Slocum uncovering this scheme was an application submitted to FERC last month by an entity called “Goldman Sachs Renewable Power Marketing” (GSRP), which owns various solar-generation facilities around the country. It operates similar to a private equity fund, pooling money from institutional investors to acquire the solar farms. In order to sell electricity in the United States, GSRP needs sign-off from FERC, what is called market-based rate authority. “The application is pretty routine, 90 percent of the time there’s nothing there,” Slocum explains.

In this case, what caught his eye was a footnote on page 3 of the application, stating that Goldman Sachs Renewable Power is “not affiliated” with Goldman Sachs Group. You’d think Goldman Sachs would file a trademark complaint against an unaffiliated corporate entity using its name. But the linkages go well beyond that.

GSRP’s point of contact on the application, Patrick McAlpine, is a vice president at Goldman Sachs, who lists Goldman Sachs’s address, phone number, and a “gs.com” email domain as his contact information. Goldman Sachs Asset Management, McAlpine’s division of the firm, is listed as an “investment manager” for GSRP. Goldman Sachs even owns a stake in GSRP, though it’s claimed to be less than 5 percent.

The non-affiliation, according to the footnote, derives from the fact that “GSRP’s Board of Directors consists of three independent directors, who are independent of The Goldman Sachs Group.” In the application, Goldman Sachs doesn’t name the directors.

Slocum initially filed an objection, arguing that Goldman Sachs and GSRP are clearly affiliated. FERC restricts trading among affiliates, seeking to avoid a situation where, for example, Goldman Sachs effectively sells power to itself and pockets the receipts at the expense of GSRP’s investors. “Goldman Sachs is one of the largest energy traders in North America,” he says. “You can conceal a bunch of things with affiliates, and FERC has restrictions on that.” By treating GSRP as a non-affiliate, “Goldman would get to evade all that.”

Source: The American Prospect

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