BID HOMBRES
US asks why Goldman bankers were T-bonds’ …
The Justice Department’s investigation into Wall Street’s rigging of the $14 trillion Treasury market is zeroing in on Goldman Sachs — just as the bank’s former executives have taken over the department that’s at the center of the probe, The Post has learned.
Goldman won almost every US Treasury bond auction from 2007 to about 2011, a remarkable streak that came despite Treasury Department safeguards created to keep bidding competitive, sources familiar with the investigation said.
At the center of the case are chats and e-mails believed to show Goldman traders sharing sensitive price information with traders at rival banks — a sign of possible price fixing and collusion, according to sources familiar with the investigation.
“They didn’t lose many bids,” one person who has seen the bid data told The Post. The prices Goldman offered for Treasury bonds “would be very close” but just above offers from other banks, and typically arrived “at the end of the auction.”
Spokespersons for Goldman and the Justice Department declined to comment. A message left at Treasury’s press office wasn’t immediately returned.
By winning a greater number of the bond auctions, a bank could boost its profits when it sold the debt to its customers.
The probe’s details are becoming clearer as at least six Goldman Sachs alumni are in high levels of the Trump administration.
Treasury is run by former Goldman Sachs partner Steve Mnuchin. Gary Cohn, who is now director of President Trump’s National Economic Council, was president of Goldman Sachs during the years when the rigging is alleged to have taken place.
At least four other banks are being investigated for colluding with Goldman traders: Deutsche Bank, Royal Bank of Scotland, UBS, and BNP Paribas, a source said.
No one has accused any bank, or Mnuchin or Cohn, of any wrongdoing.
The investigation is focusing on Goldman’s interactions with the bedrock of the US financial system: Treasury’s auctions for debt in the form of bonds and notes.
Those bonds, sold in about 300 auctions a year, not only finance the government’s operations but also help set rates for everything from home mortgages to credit cards.
Goldman is one of 23 primary dealers that bid directly with the government and then distribute Treasury bonds to their clients.
In the auctions, the primary dealers submit secret ballots before 11 a.m. for up to 35 percent of the share of the offering. The highest-bidding bank wins.
Specifics of the auction bids are a closely held secret. Last year, Treasury denied The Post’s Freedom of Information Act request for data going back to 2000 on the grounds that it was “protected from disclosure as confidential commercial or financial information.”
Treasury did release partially redacted data on auction bids that had been changed — a potential sign of manipulation — but the documents don’t identify the bidder or the price paid.
Officials at the department were aware of Goldman’s disproportionate winning streak at the time — but they assumed the bank was just better at pricing the bonds, one person who’s familiar with the bid data told The Post.
Treasury officials, however, were aware that other major investors, including some central banks, had concerns that banks were front-running their own customers in order to make more money off of them.
“There had been some nervousness on the part of large buyers,” the person said. “They were worried about being front-run sometimes.”
That concern contributed to a surge in direct bidders — investors who bypass the bank and try to get a chunk of the bonds through the auction process — around 2010, the source said.
At the time, big investors wanted “to put their money to work in the governmentbond market without revealing their intentions to the primary dealers,” noted a January 2010 Wall Street Journal story about the rise in direct bidders.
“When you see a surge in direct bidders, you have to ask what it means,” the person said.
The investigation has spurred a class-action lawsuit — filed in Manhattan federal court — led by a Cleveland pension fund against the 23 primary dealer banks.
After The Post first broke news of the investigation in June 2015, primary dealers changed how they bid on auctions, according to the suit.
At the time that the rigging is believed to have happened, Cohn was the No. 2 person at Goldman, behind CEO Lloyd Blankfein.
In Cohn’s position as cochief operating officer (a position he later took on solely) and president, he oversaw the unit of the bank that submitted the bids to Treasury.
The Justice Department, which started the investigation in June 2015, is still in the middle stages of its probe, sources said.
While Justice conducts all of its investigations in secret, people familiar with the probe told The Post that Justice is more tight-lipped than usual in this case.