Regulators divided over suitability of Goldman Sachs

Thursday, June 3, 2004 | 11:13 a.m.

CARSON CITY -- The state Gaming Commission will consider a waiver application on June 17 of the investment firm Goldman Sachs & Co., which was sharply criticized by a gaming regulator Wednesday.

Goldman Sachs is seeking a waiver to avoid a full licensing process to hold some shares in Harrah's Entertainment Inc.

The state Gaming Control Board on Wednesday deadlocked 1-1 over whether there should be a two-year limitation on the waiver because of Goldman Sachs' prior troubles with federal and state security regulators. Goldman Sachs paid a $110 million penalty in a civil settlement in a suit by the Securities and Exchange Commission that alleged analysts for the company misled investors with rosy stock ratings designed to win the firm's investment-banking section additional business from the companies issuing the stock.

Board Chairman Dennis Neilander and member Scott Scherer favored allowing the waiver. Board member Bobby Siller was absent because of a medical issue, said Neilander.

Scherer wanted a two-year limitation on the waiver to see if Goldman Sachs had changed the way it did business. He said the company did not replace part of the upper management of the company that was involved in the complaint by the SEC.

Neilander said he was satisfied that Goldman Sachs was suitable for a waiver and that "remedial actions" have been taken to prevent a re-occurrence. He did not favor a two-year limit on the waiver.

Lucas van Praag, an officer in Goldman Sachs, said the company is highly regulated in every nation where it does business. He said Goldman Sachs did not admit the allegations in the settlement. Every company did business the same way, van Praag told the board.

But he said changes have been made to prevent the analysts from being influenced by the investment banking section of the firm.

Scherer wondered why Goldman Sachs paid a $110 million penalty if it did nothing wrong. Nine other companies were also penalized in the settlement.

"These are pretty damming allegations," Scherer said. The split in the vote by the board over the two-year condition allowed the application to go forward to the gaming commission that meets June 17 in Carson City. It will make the final decision.

Separately, the board recommended approval for Putnam Advisory Co., which had been penalized $100 million by federal and state regulators for improper trading practices.

Putnam sought a waiver to hold stock in 24 publicly traded gaming companies without undergoing a full license investigation. Michael DeFao of Putnam told the board that new management was in place and those involved in the allegations are no longer with the company.