Pierre Paulden and Caroline Salas
November 17, 2008
Investors in the $591 billion high- yield, high-risk loan market are accusing Goldman Sachs Group Inc. of naked short selling to profit from record price declines.
- A d v e r t i s e m e n t
At least two fund managers complained verbally to officials of the Loan Syndications and Trading Association, saying they believe Goldman helped drive down prices by using the technique, according to people with knowledge of the objections. New York- based Goldman is acting against its clients by trying to profit at their expense, the investors said.
A $171 billion drop in the value of the loans in the past year is pitting banks against investing clients on assets once considered so safe they typically traded at par. The drop exposed flaws in an unregulated market where trades can take from several days to months to settle and banks may have information unavailable to investors. In a naked-short transaction, a firm would sell debt it didn’t already own, betting the price will fall before it purchases the loan and delivers it to the buyer.
“The LSTA is closely monitoring issues of naked short selling,” Alicia Sansone, head of communications, marketing and education at the New York-based industry association, said in an e-mail.