The Obama administration's pay czar said on Thursday that the lure of fat paychecks influenced Goldman Sachs Group Inc's bets against subprime mortgages before the market collapsed during the financial crisis.
Kenneth Feinberg told the Reuters Global Financial Regulation Summit in Washington D.C. that Goldman's traders and salespeople had payouts on their minds when they shorted the housing market.
I'm sure it influenced their actions, Feinberg said. Human nature tells you that when your salary is going to be somehow related to your overall success in the marketplace, there's an influence there.
He added: How much of an influence?... That is a question for a psychiatrist, a philosopher, an empiricist.
A Goldman spokesman disputed Feinberg's point, saying: Our hedge was motivated by responsible risk management, which both regulators and shareholders expect.
Feinberg's tough words come two days after a Senate panel grilled past and present Goldman executives about whether the firm had put its own profits ahead of its clients' interests.
The U.S. Securities and Exchange Commission has separately accused Goldman of fraud for failing to tell clients that some debt securities they were buying had input from hedge fund Paulson & Co, which stood to benefit if the securities lost value.
How pay motivated Goldman's maneuvers in the subprime market was a concern of senators during the hearing, which lasted roughly 11 hours.
Feinberg for much of the past year has been studying and ruling on pay at financial firms. He was appointed by President Barack Obama to decide on pay at firms that received the biggest taxpayer bailouts, while also determining whether compensation practices were in the public's interest.
In the case of Goldman, Feinberg said the Wall Street firm engaged in practices that were clearly contrary to the public's interest.
Was the whole idea engaged in by Goldman against the public interest? I think everybody would say yes, Feinberg said. Certainly, Congress is suggesting that the answer to that is yes.
Goldman, which repaid its $10 billion bailout, is not in Feinberg's immediate purview but is part of a broader review of pay during the financial crisis at all 419 firms that received taxpayer assistance.
Feinberg said about half of the firms said they had no employees who made more than the reporting threshold of $500,000.
He said he plans to decide in the coming weeks whether to request that some executives give back pay doled out during the financial crisis.
(Reporting by Steve Eder; Editing by Tim Dobbyn and Gerald E. McCormick)