Meg Whitman (R)
Jerry Brown (D)
Steve Poizner (R)
SACRAMENTO, Calif. (Legal Newsline)-Hoping to help get California Attorney General Jerry Brown back in the governor's office, the state Democratic Party on Friday attacked Republican gubernatorial frontrunner Meg Whitman over her ties to a much-maligned global investment and securities firm.
The ad focuses on Whitman's 15 months on the board of Goldman Sachs Group Inc., the New York investment firm blamed for contributing heavily to the financial crisis that began in 2007 and plunged the nation into a deep recession.
"While Washington cracks down on Wall Street and Goldman Sachs, Meg Whitman is silent," the ad says. "Is it because she was on the board of Goldman Sachs and made millions from insider stock deals?"
In addition to assailing the former eBay chief executive, the spot calls on Congress to approve legislation by Sen. Carl Levin, D-Mich., that would punish businesses and individuals who sock away money in tax havens like the Bermuda Islands, where foreign companies can incorporate and individuals' earnings are not levied.
The 30-second spot alleges that Whitman "has millions invested in secretive offshore accounts managed by Goldman Sachs." Scheduled to run for five days at a cost of $800,000, the ad marks the Democratic Party's first TV swipe at Whitman.
A prominent Whitman supporter told Legal Newsline that the ad shows that Democrats want Brown to face-off ultimately with Whitman's chief rival in the June 8 GOP primary, state Insurance Commissioner Steve Poizner.
"Steve Poizner has become the Democrats' biggest alley to defeat Meg Whitman. This is simply a part of that effort. The fact that Poizner took a $500,000 interest free-loan from Goldman says it all," said Tom Scott, co-chair of Sacramento County Whitman for Governor.
Having closed the race from nearly 50 points to a spread of about 10, according to his campaign's recent internal poll of 800 likely voters in the GOP primary, Poizner has gone from being a long-shot to emerging as a serious contender to succeed Republican Gov. Arnold Schwarzenegger as the Golden State's chief executive.
Brown, a former governor, has a narrow lead in hypothetical general election match ups against Whitman and Poizner. In the race for the GOP nomination, Poizner has steadily gained support over Whitman as her opponents highlight her ties to big Wall Street firms, including Goldman.
Whitman resigned from the investment house's board in 2002, amid revelations she got preferential access to initial public offerings being managed by the firm in exchange for eBay's banking business, under the now-banned practice of spinning.
She and other eBay officials faced a shareholder lawsuit that said the Internet-based company -- not its executives -- should have profited from the stock-flipping deals. The lawsuit was settled in 2005 for $3 million. Its terms called for Whitman and the other executives to forfeit their profits from the deals.
In an April 27 interview with The Associated Press, Whitman said spinning was part of the "normal course of business" when she engaged in the practice.
"As I look back on it, would I do it again? No," Whitman was quoted by AP as saying.
For Whitman's time on its board of directors, Goldman paid her an estimated $475,000 in cash and stock options. The bank still manages a portion of her personal wealth, estimated by Forbes magazine to be more than $1 billion.
Whitman has poured $45 million of her fortune into her campaign, which has also received significant support from folks at Goldman Sachs.
The San Francisco Chronicle reported recently that Whitman received $110,500 in contributions last year from company figures, including two executives who are on her campaign's finance committee. The newspaper said Brad DeFoor, a managing director in San Francisco, gave $24,900, while Gene Sykes, co-chair of Goldman's global mergers and acquisitions group in Los Angeles, contributed $25,900.
Interestingly, Brown's younger sister, former state Treasurer Kathleen Brown, since 2003 has worked for Goldman, heading its West Coast municipal finance practice. In 1994, she was the Democratic nominee for California governor, a post also held by her father.
Providing political fodder for the Poizner and Brown campaigns, Goldman Sachs was thrust into the national spotlight last month, as U.S. senators -- from both sides of the aisle -- hammered a handful of the firm's current and former top brass over how they've done business.
Senators, including Republican Susan Collins of Maine and Democrat Claire McCaskill of Missouri, said Goldman's leaders have an undeniable record of putting investors second to the bank's institutional interests in how the firm handled mortgage-backed securities and other financial instruments.
Executives' appearance before the Senate Permanent Subcommittee on Investigations capped the Senate panel's more than year-long investigation of Goldman Sachs and its role in contributing to the nation's biggest financial crisis since the Great Depression of the 1930s.
Making its public image matters worse, the U.S. Securities and Exchange Commission last month accused Goldman of fraud in a civil complaint over how the firm structured and marketed CDOs, or collateralized debt obligations.
At the center of the SEC complaint is ABACUS, a CDO tied to the subprime mortgage market that was launched in the spring of 2007, after the market showed initial signs of trouble.
Goldman allegedly allowed hedge fund Paulson & Co. to help design the CDO that the bank later bet against. Regulatory officials say the bank failed to disclose that to customers, constituting fraud. The SEC says losses tied to the CDO are about $1 billion.
In the wake of the filing and the Senate hearing, Fitch Ratings on Wednesday revised its outlook on Goldman Sachs Group to negative. The firm has Goldman marked an "A+," four steps below its highest "AAA" rating.
"The Rating Outlook revision to 'negative' incorporates recent legal developments and ongoing regulatory challenges that could adversely impact Goldman's reputation and revenue generating capacity," Fitch said.
From Legal Newsline: Reach staff reporter Chris Rizo at email@example.com.