Everyone is talking about Goldman Sachs and the SEC investigation today (see David Dayen’s take on it earlier this morning), but there is one little wrinkle that could complicate matters for the Obama administration very quickly, and his name is Philip D. Murphy.
Over in Europe, Goldman Sachs has been a pariah in many official circles ever since their role in a 2002 scheme to help Greece hide its true debt picture came to light. Back in February, the Financial Times tried to track down the path of the deal between Greece and Goldman, and found this:
The deal was put together by Antigone Loudiadis, herself of Greek origin, who was Goldman’s head of sales at the time for its European fixed-income and currencies unit. Goldman is said to have taken about €1bn of credit risk, which it hedged with a German bank, while Greece’s debt management agency paid an unprecedented €200m in fees and charges. Goldman transferred the swap in 2005 to National Bank of Greece, the country’s biggest commercial lender. NBG set up a special-purpose vehicle called Titlos and transformed the swap into a 20-year securitisation bond, which stayed on its books — thus giving the government a further breathing space.
Since this story broke, the euro plunged, and in Germany, talk of aiding Greece (so as to keep the euro from sliding off a cliff) is tempered with rising anger over a potential massive bailout.
So now, hard on the heels of this anger over Goldman’s work to help Greece deceive the EU finance ministers comes the SEC’s announcement last Friday. European regulators have wasted no time in opening their own investigations. Says the Washington Post,
London’s Financial Services Authority and Germany’s BaFin regulatory agency said they were coordinating with the U.S. Securities and Exchange Commission’s investigation of Goldman’s sale of an investment that, the SEC charges, was structured to fail.
With a major international investigation like this, it is important for each country to have solid ambassadors in place. And who is the US ambassador in Berlin? Philip D. Murphy:
Born in 1957, Ambassador Murphy is a native of the Boston, Massachusetts area. He graduated from Harvard University in 1979 with an A.B. in Economics and received an M.B.A. in 1983 from The Wharton School of the University of Pennsylvania. He and his wife have four children.
From 1993-1997, Ambassador Murphy headed Goldman Sachs’ Frankfurt office, where he had oversight responsibility for activities in Germany, Switzerland and Austria, as well as in the then-emerging nations of Central Europe. From 1997-1999, Ambassador Murphy served as the President of Goldman Sachs (Asia). In all, he spent 23 years at Goldman Sachs and held a variety of top-level positions before becoming a Senior Director of the firm in 2003, a position he held until his retirement in 2006.
After leaving Goldman Sachs, Ambassador Murphy served from 2006-2009 as the National Finance Chair of the Democratic National Committee.
Missing from that official State Department bio is his final job at Goldman Sachs, before his retirement in 2006. Thankfully, the White House announcement of Murphy’s nomination filled in that little gap: he was a Senior Director and Co-Head of Goldman Sachs’s Investment Management Division.
What does IMD do? I’m glad you asked:
Investment Management works with clients, from individual investors to large financial institutions, to develop advanced portfolio management strategies to help them achieve specific goals for their own or their institution’s financial future.
Investment Management teams:
- Develop and manage customized investment portfolios and discretionary funds for institutions, corporations, pension funds, governments, foundations and individuals in countries around the world
- Design and manage families of mutual funds
- Build and maintain lasting relationships with institutional and high-net-worth individual investors and their consultants
- Manage relationships with investors and provide a full range of reporting and accounting services
- Work closely with professionals in other divisions of Goldman Sachs to develop new client relationships and to create new products
If the Financial Times is right about Loudiadis’ role in the scheme to hide Greek debt, that last bullet point in IMD’s description of its work looks really, really interesting. The FT story paints Loudiadis as the person who made the deal happen, but I doubt that a deal involving the National Bank of Greece (and the Greek government) like this would have been done without consulting — perhaps heavily — with the folks at IMD in the main Goldman offices.
Which brings us back to Germany and Ambassador Murphy.
Given that the Germans are likely on the hook for a big chuck of the EU’s Greek bailout deal, the pressure within Germany to look into this scheme further is enormous. If I were a German investigator, I’d be mighty intrigued by Murphy’s list of jobs while at Goldman and the description IMD gives of their work. In fact, I’d even say that he’d be someone I’d want to have a talk with. Under oath.
And that’s when this becomes a problem not just for Goldman, but for the State Department and the White House.
How will they instruct Murphy to respond when German investigators roll up to the US embassy, ask to speak with him, and say “Yes, we’re investigating your former company about actions taken about the time you were there and since your departure. Would you mind coming down to our offices to answer a few questions?”
They may want to start thinking about the answer to that question pretty soon, if they haven’t already done so.