Goldman Sachs caught in Midway Airport conflict of interest

| 7/20/2006

At least one large financial securities firm is being accused of conflict of interest in some high-profile transactions involving privatized U.S. infrastructure.

Goldman Sachs Group Inc., one of the world’s top profit-making securities firms, has been called out by Illinois state officials for working a deal on the back end of a potential transaction to privatize Midway Airport.

Bloomberg reported that financial advisor Goldman Sachs was planning on advising Chicago officials on the possible sale of Midway to a private investor. But Chicago officials found out that the firm was, at the same time, trying to buy a European airport-investment company that planned to bid on the Midway deal.

Chicago Chief Financial Officer Dana Levenson, according to Bloomberg, abruptly halted Goldman Sachs’ role as financial advisor in April on the Midway deal.

“If we think anything could hinder us from maximizing proceeds, we have to fix the situation. And that may involve making sure our advisors don’t have conflicts,” Levenson told a Bloomberg reporter.

A Goldman Sachs spokesman said the firm’s clients, more and more, are asking for financial advice but also for investment opportunities.

“We take conflict and business selection issues seriously and carefully think them through each situation,” spokesman Michael DuVally said in a statement to Bloomberg.

The financial market for the privatization of U.S. infrastructure, including toll roads, airports, rail lines and ports is growing.

Companies like Goldman Sachs, JPMorgan Chase & Co., U.S. Bank and Morgan Stanley are reported to have “infrastructure funds” growing in accounts for such investment opportunities.

But they are also the financial advisors on some of the biggest deals to date, such as the $3.85 billion Indiana Toll Road transaction. Goldman Sachs reportedly made $20 million on that transaction involving the state and investment consortium ITR Concession Co., consisting of Cintra of Spain and Macquarie of Australia.

ITR Concession Company has control over the Indiana Toll Road and toll revenue for 75 years in the agreement.