Since Friday’s post about Bob Hormats, Obama’s most recent Goldman nominee, I’ve done a bit of research on his record. It looks very bad.
Hormats was one of Wall Street’s top diplomats over the past two decades, which means that he played a starring role in every foreign financial crisis: Mexico, Russia, Thailand, etc. The formula was fairly consistent: before each crisis, as Goldman’s chief international banker, Hormats advised these countries on how to open their markets (deregulation, privatization, etc) and invite foreign flows of capital. This, in turn, created speculative bubbles. Once they burst, Hormats advised the US on the necessary bailout and issued warnings about what Wall Street would do if no bailout came through.
In Hormats’ career as international financial villain, one incident looks especially bad: his role in Goldman’s stock offering for PetroChina, the Chinese oil company linked to Sudan, in 2000.
The IPO was opposed by many human rights activists because PetroChina’s parent company was doing business with Sudan’s murderous regime — helping them capitalize on Sudan’s oil reserves and using forced labor in the process. Eric Reeves, a professor at Smith College, later recalled that “we hammered that IPO.”
In response to activist pressure, Hormats made statements to the media intended to assuage the concerns of universities and pension funds, that might invest in the IPO, saying that controls were in place that would keep money from flowing to Sudan:
“The structure of the deal emerging should mean that Sudan is not an issue because of the safeguards ensuring all the funds raised here will be used domestically,” said Robert D. Hormats, Goldman Sachs International vice chairman and a former National Security Council and State Department official. “PetroChina will be a purely domestic company.”
On its face, this is a bogus argument, but it also turned out to be false. According to Reeves, the Smith professor, quoted in the Harvard Crimson:
“There was no firewall,” Reeves said. He said that PetroChina’s investment banker, Goldman Sachs, filed disclosure papers with the SEC revealing that “a full 10 percent of the IPO proceeds went directly to China National Petroleum Company for use however, wherever they wanted.”
So Hormats, speaking with the full force of a former (?) US diplomat, had misrepresented the deal — potentially lied outright — in support of Sudan’s bloodthirsty regime and Goldman’s bottom line. The vampire squid knows no bounds.
Hormats’ intervention was necessary because activists like Reeves were a threat to the PetroChina offering. This has a lot to do with the fraudulent schemes investment banks like Goldman Sachs were using to inflate IPO prices at the time.
This is how it worked: Goldman would begin talking up an IPO to institutional investors (universities, pension funds, etc) long before the deal was formally announced via an SEC registration statement. They would give special deals to these large investors before the IPO, artificially inflating the price long before CNBC audiences could ever get a piece of the action. Matt Taibbi explains this process in the section of his article on the tech bubble.
Hormats’s remarks, issued well before the IPO registration statement, played a central role in the PetroChina IPO manipulation. Without his assurances, institutional investors like Harvard, which later divested from PetroChina under pressure from student activists, may never have gotten into the game.
His statements were later cited by the SEC in charges that Goldman illegally promoted the stock of PetroChina and three other Asian companies. From the Washington Post article on the case’s settlement:
Additionally, the SEC said that a senior Goldman representative made inappropriate statements to the press — including The Washington Post — regarding the firm’s role in underwriting PetroChina Co., a Chinese-based oil producer whose parent company invested in Sudan. Although the SEC document didn’t name the senior Goldman representative, the articles it referred to quoted Goldman vice chairman Robert D. Hormats. Hormats’s statements were made before the company filed a registration statement with the SEC and violated a law that prohibits any actions that may pique interest in a stock before a registration statement is filed.
Goldman settled that case for $2 million. The PetroChina IPO alone was worth around $3 billion, with maybe 6%, or $200 million, going to Goldman. Do the math — Hormats and Goldman paid a very small price for these illegal market manipulations.
Market manipulations are standard for Goldman Sachs, as Taibbi has catalogued, but market manipulation in support of a genocidal regime? This episode in Hormats’s career really puts him head and shoulders above the rest of the banksters at Goldman.
Let’s send him to State!