What is behind David Loeb’s abrupt departure from Goldman Sachs?

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The plot thickens at Goldman’s and their being drawn into, yet again, another insider dealing scandal. This seems to be becoming something of a habit…

David Loeb, a senior salesman and Managing Director at Goldman Sachs announced just over a week ago that he was leaving the company and no one seems to know exactly why. The middleman between Goldman Sachs traders and the firms hedge fund clients specialised in the technology sector and also found himself at the centre of the Raj Rajaratnam insider trading case in 2011 which resulted in the indictment of another Goldman’s colleague – Rajat Gupta.

Loeb worked closely with a Goldman technology analyst – Henry King whose activities are also under investigation by the US SEC in connection with information he provided to Goldman’s hedge fund clients about various technology companies the form covered. The vampire squid’s staff members were also investigated over information leaks relating to Berkshire Hathaway’investment in the firm in 2008.

Rajat Gupta

Rajat Gupta was eventually sentenced to 2-years in prison after he was convicted of the insider trade charges relating to info he provided to hedge fund manager Raj Rajaratnam and to make matters worse for him he was also ordered to pay $6.2m in legal fees back to his former employer, Goldmans! The Galleon fund manager Rajaratnam was also convicted and sentenced to 11-year in prison. At the time of that case, the name of David Loeb surfaced as being one of those possible insiders suspected of passing information to hedge funds but he was never formally charged. Then…

In the last few days, Goldman Sachs has once again found itself in the unwelcome spotlight over another suspected insider trading issue. It seems that one “lucky” Swiss trader bought $90,000 worth of Heinz call options just one day before the company received a takeover bid from Berkshire Hathaway and 3G Capital. Shares of Heinz rose 20% and this trader’s account increased to more than $1.8 million, as the traded options generated a return of 1,700 percent with the June options for example, rising from 40 cents to $7.33.

Not surprisingly, such a ‘blip’ in the otherwise relatively quiet Heinz options serious prompted the SEC to investigate, as typically not more than a dozen contracts traded on a typical day in these out of the money strikes, whereas the day before the takeover bid more than 2,000 changed hands. Mmmm…

The SEC obtained a preliminary freeze on that account’s funds to avoid the money disappearing to any place outside the US’s jurisdiction and the Judge ordered that anyone connected to the trades appear before him. Unsurprisingly no one showed up and no one claimed ownership for that account. The account is so anonymous that not even Goldman was able to identify its owner, just stating it is from a private investor in Zurich.

The crackdown on insider trading continues apace in the US in particular with non other than hedge fund supremo Steve Cohen of SAC Capital also coming under close scrutiny and that we have covered on this blog. It seems the search for hedge fund “alpha” that has been ominously absent in recent years is causing many players to cross the line between what is legal and what isn’t…

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