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Goldman's shares get suspicious boost pre-Buffett

(Agencies)
Updated: 2008-09-25 09:30

NEW YORK -- An unusual surge in Goldman Sachs' share price in the last 10 minutes of trading on Tuesday raised eyebrows on Wall Street, as it came two hours before news of Warren Buffett's big investment in the bank.

A view of 85 Broad Street where US investment bank Goldman Sachs is headquartered in New York, March 5, 2008. [Agencies]

Goldman Sachs shares rose more than $5 heading into the close of trading even as the rest of the market tumbled, leaving traders suspicious that inside information was used to make a profit.

"Obviously someone knew the Buffett news that was coming out. I noticed it yesterday and I was telling my colleagues something is going on with Goldman," said Dave Rovelli, managing director of US Equity Trading at Canaccord Adams in New York.

Securities and Exchange Commission spokesman John Nester declined to comment on whether the incident is being investigated. Goldman Sachs could not immediately be reached for comment.

Just before 6 pm EDT, Goldman Sachs said it would get a $5 billion investment from Buffett's Berkshire Hathaway Inc, which investors welcomed as a much needed vote of confidence in the bank.

Goldman's shares have since risen about 6 percent. If someone with inside knowledge of the deal was snapping up the bank's shares they would have made a significant, and illegal, profit.

"Someone is going to get caught, because that is easy to track, they can find out who did that," said Rovelli.

Goldman Sachs' stock rose from $119.53 at 3:50 p.m. to $125.05 at the close. The S&P financials sub-index meanwhile fell from 273.79 to 273.61 in the same time frame.

"That share move at Goldman was a clear outlier. It got everybody's attention. It was clear that there was something specific going on in that stock that wasn't going on in any other stock in that space," said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.

When a stock moves so sharply against the rest of the market, it is usually either due to company-specific news or a big seller of the stock taking a break also known as "a seller's strike," said Kenny.

Given that volume increased in Goldman's stock in the last 10 minutes, the "seller's strike" explanation seems unlikely.

Steve Claussen, chief investment strategist at OptionsHouse, a subsidiary of PEAK6 Investments, an options trading firm in Chicago noted that while options in Goldman were not particularly active, "it does raise eyebrows that the stock would attract so many buyers given that the Standard & Poor's 500 index closed near its lows."