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Whitman defends tenure at Goldman

Former eBay CEO Meg Whitman said Tuesday she regrets taking part in a now-banned stock sale practice at Goldman Sachs and said she left the investment bank's board after 15 months because she "wasn't a good fit."
/ Source: The Associated Press

Former eBay CEO Meg Whitman said Tuesday she regrets taking part in a now-banned stock sale practice at Goldman Sachs and said she left the investment bank's board after 15 months because she "wasn't a good fit."

The Republican front-runner in the California governor's race sought to defuse criticism about her connections to the firm, which have put her on the defensive in the GOP primary.

"The lesson learned about it is you have to be extra vigilant about seeing any actual or perceived conflict of interest," she said in an interview with The Associated Press. "I missed the signposts here."

Whitman's ties to Goldman have become a rallying point for her opponents, especially as the firm faces federal fraud charges. Goldman executives faced questioning Tuesday on Capitol Hill, where some senators accused the iconic Wall Street firm of helping to fuel the mortgage-related financial crisis that plunged the country into recession.

Goldman Sachs paid Whitman $475,000 for her board service, but she left in 2002 after questions were raised about whether Goldman gave her preferential access to stocks that were flipped quickly for huge profits in exchange for eBay Inc.'s investment banking business.

'Spinning' settlement
She and two other top eBay officials settled a shareholder lawsuit over the now-banned practice, known as "spinning." Shareholders argued that the company — rather than its executives — should have benefited from the deals.

Whitman, a billionaire, said she forfeited the profits from the stock sales as part of the settlement to end the distraction of the lawsuit. She said the practice was part of the "normal course of business" at the time.

"As I look back on it, would I do it again? No," Whitman said.

The practice was attacked because of the perception that investment firms gave corporate executives special access to initial public stock offerings in exchange for future business. While eBay did business with Goldman, Whitman said those decisions were completely separate from her investments.

"There was no link between accepting these IPO shares and funneling business to Goldman," she said.

Democrats and two union-funded groups are hoping to parlay rising anger over Wall Street bankers and corporate America into a backlash against Whitman's candidacy. The state's largest labor group, the California Federation of Labor, on Monday launched a website that calls the former CEO "Wall Street Whitman."

Whitman did not consider herself a Goldman insider, however.

She said that shortly after Goldman Sachs went public and she joined the board, it was clear that officials weren't interested in the transparency she was accustomed to at an Internet startup.

Whitman writes in her memoir, "The Power of Many," that then-CEO Henry Paulson was dismissive when she raised questions about an item on the agenda at one of her first meetings.

"They weren't that interested in hearing what the board had to say," she said Tuesday. "They were not used to and probably not excited about the prospect of outside board members."

She said her departure after just 15 months "is maybe a record time to get off a board."

Whitman also served on Goldman's compensation committee, which approved massive bonuses for Paulson and others. She said the bonuses were based on competitive industry norms and the firm's performance.

"There's no question that people on Wall Street make a lot of money," she said. "It is the culture. And it's competitive, right, that business? Your assets (go) down the elevator every night."

Brown connection
Whitman's campaign has sought to divert some of the attention surrounding Goldman Sachs to Democratic gubernatorial nominee Jerry Brown, who was mayor of Oakland when the city negotiated a complicated interest rate bond swap in 2003. That was just before Brown's sister, former state treasurer Kathleen Brown, began serving as West Coast head of municipal finance at Goldman.

Oakland and Goldman Sachs officials renegotiated the terms of a 1998 bond so the city would swap a variable interest rate for a fixed one to provide stability in paying off the debt through 2021. The swap has not worked out in the city's favor so far: Because interest rates are at historic lows, the difference between what the city is paying now and what it would be paying had it kept the variable rate is $5 million a year.

That gap is expected to narrow as interest rates rise.

Brown spokesman Sterling Clifford said the city council made those investment decisions, which were not reversible by the mayor.

"It was a non-transaction," Clifford said.

Whitman specifically criticized Brown for a decision on those payments made in 2005, when the city paid off the original debt. Under terms of its agreement with Goldman, the city had to continue paying the interest. Oakland officials opted against renegotiating the interest rate because the city would have had to pay a $15 million penalty.

Whitman said it doesn't matter whether Brown had a voting role in that decision. She said his decision not to get involved in 2005 was a "failure of leadership."

"At least you have to explain what happened. As far as I know, he has been completely mum on this subject," she said.

Goldman Sachs manages a share of Whitman's personal fortune, which she said would be placed in a blind trust if she is elected governor. Goldman executives also have donated more than $100,000 to her campaign.

Whitman's Republican primary rival, state Insurance Commissioner Steve Poizner, who is also a multimillionaire, borrowed $500,000 from Goldman Sachs for an unsuccessful campaign for the state assembly in 2003, his campaign confirmed.