Is Tesla Motors Inc (TSLA) Goldman Deal a Swiss Cheese or Chinese Wall?

Tesla Motors Inc (TSLA) Model 3

Tesla Motors Inc stock received an upgrade from Goldman Sachs on Wednesday, and a few hours after it made the announcement that it tapped the investment bank to underwrite a $1.7bn stock sale, and for this reason it has been criticized by many. One lawyer even said it should draw scrutiny from the SEC, says a report from CNBC.

Tesla motors inc (NASDAQ:TSLA) Tesla Model 3

Lawyer suspects foul play in Tesla deal

Andrew Stoltmann is a lawyer based in Chicago, and has pursued dozens of arbitration actions and lawsuits against large financial services firms. “To start investigating, all the SEC has to do is have a belief that something amiss may have happened,” the lawyer said.

The lawyer believes the SEC has enough evidences in the form of the timing of the stock sale announcement. Goldman revealed a bullish upgrade of Tesla stock early Wednesday, and changed the rating from ‘neutral’ to ‘buy.’ They also gave a six-month price target of $250 – a 22% upside.

The bank said it doubts if Tesla Motors Inc shares are fully capturing its disruptive potential. Tesla shares saw a rise at the open on Wednesday, and after the market closed, the EV firm announced that Goldman will co-lead its stock offering, following which the shares fell into the red.

It is mandatory for big banks to keep a ‘Chinese Wall’ so as to separate research divisions from banking teams. The lawyer, who describes himself a ‘Goldman critic,’ says the roller-coaster ride that took place on Wednesday for Tesla shareholders was representative of the bank employing a ‘Swiss-cheese wall’ between divisions instead.

Apart from him, many others too smell a foul play in the deal, and there are plenty of such conspiracy theories on Twitter.

Not all agree with the lawyer

However, Goldman denies any such thing. In an emailed statement to CNBC, the bank said, “Our research is independent. We followed all of our standard policies and procedures with respect to our research publication on Wednesday.”

Also, there are many who disagree with the outspoken attorney. An industry lawyer, who wanted to keep his identity hidden, told CNBC that though it’s uncommon but not unusual. The timing surrounding the upgrade and subsequent offering was potentially a result of the bank’s independence between research and banking arms, said the lawyer.

Further, the bank has a relationship of several years with Tesla, and it didn’t become a Goldman client this Wednesday. Goldman along with the rival Morgan Stanley led Tesla’s IPO, and they both usually run Tesla’s secondary stock deals. In other words, it can be said that Goldman has already done all the work needed to convince Musk to hire its bankers.

Another important point is – the bank has kept a Chinese wall between research and banking, and this deal proves it. It might sound odd, but the fact that Goldman is allowing free rein to both its bankers and analysts is proof that the wall is working as intended. Downgrading Tesla Motors Inc , of course, would have offered far stronger proof.

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Aman is MBA (Finance) with an experience on both marketing and Finance side. He has work as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, playing PC games and cricket.


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