Goldman Sachs on Thursday fired20 New York- and London-based analysts in the Securities Division for cheating on a test they took over the summer during training.
The firings, which came the same day the bank reported disappointing third-quarter earnings results, had everyone talking at the end of last week.
They captured the imagination.The premier global investment bank had caught some of the brightest young minds on Wall Street cheating.
They also come at a time when there is a focus on behavior in finance and the treatment of the most junior bankers on Wall Street. The Big Five banks have also reported a broadly underwhelming set of third-quarter earnings, with Goldman Sachs among the banks to miss analysts’ expectations.
It turns out the way in which the Goldman Sachs analysts cheated is surprising in its lack of sophistication.
They were caught Googling the terms on an exam using Goldman-issued hardware, according to people familiar with the matter who spoke with Business Insider on condition of anonymity.
Upon joining Goldman Sachs, analysts are put through the firm’s Goldman Sachs University — a multiweek training and orientation program.
As with many Wall Street banks, Goldman invests a great deal of resources in preparing its new recruits. During the GSU program, hundreds of analysts attend classes in which different modules are taught and senior executives speak.
Flickr/ Andrew Russeth
Throughout the program, trainees are tested on what they have learned. Goldman Sachs warned analysts repeatedly that cheating on the tests would be not tolerated, according to people familiar with the matter.
In late July through early August, the analysts took a multiple-choice exam that tested their knowledge of general finance concepts such as stocks, bonds, derivatives, and mortgages, according to people familiar with the process.
The analysts were given materials a couple of days beforehand to prepare. They had to score a 70 or higher to pass. If they failed, they would not lose their jobs; they could retake the test.
The tests in question were taken in New York and lasted over an hour, according to the people. Analysts from London were in town for training.
The exam, which was administered by an outside educational company, was not seen as being especially difficult, according to one person familiar with the test.
The analysts took the exam in rooms with smaller groups of about 40 or so.
The cheaters, who were spread across different rooms, used their Goldman-issued computers to search terms that came up on the exam, according to people familiar with the matter. They took their test on a computer and used that same computer to use Google to search for some of their answers.
Goldman was able to trace the activity, and on the day the bank reported weak earnings, the careers of 20 or so analysts were cut short.
Landing an analyst role at Goldman is more difficult than being accepted to Harvard. Last year, CEO Lloyd Blankfein wrote that the investment-banking giant had more than 43,000 candidates apply for 1,900 analyst positions. The bank accepted only 4% of them.
Those who have been fired are on a notice period — a period of time in which the company continues paying the person so he or she can search for another job.
Michael Duvally, a Goldman Sachs spokesman in New York, said in a statement: “This conduct was not just a clear violation of the rules, but completely inconsistent with the values we foster at the firm.”
The news of the firing led to a debate on Wall Street.
Some said cheating on these tests had long been an accepted part of finance training.
Someone who had taken the exams in the past described them as a “big waste of time.” The person said “cheating was done only to get rid of them.”
While some have expressed frustration with the analysts’ having their careers cut short over an exam that maybe didn’t matter that much, others don’t see it that way.
Another person who has been through GSU said the training was “extremely intense.” The person, however, said the firm stressed the importance of integrity from day one.
“A lot of training is not finance-related and more on how to follow the SEC rules and on the culture of integrity,” the person said, adding, “[I] would have been kicked out if I cheated in college, so what about a regulated working environment where I play with money?”
Another person who had been through the program pointed out that everyone wanted to do well because of the competitive environment of the firm, but that didn’t mean cheating should be tolerated.
Cheating “to make a good impression … bad move.” the person said.
Bloomberg News first reported the firings.
Source: Business Insider