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Goldman Sachs Sells Stake in Sex Trafficking Company

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BAD INVESTMENT
DailyFeed
The month of March has seemingly zoomed by us, and Goldman Sachs (GS) is probably grateful for that.
 
It has not been a great month news-wise for the storied Wall Street firm. First, it took a public relations hit when ex-employee Greg Smith released an op-ed in the New York Times slamming the bank for its client-belitting, profits-at-all-cost culture (See our own Michael Comeau's hilarious parody)
 
Then, last week, in case you missed it, it was revealed that a private equity fund run by Goldman was one of the largest stakeholders in Village Voice Media, a newspaper publisher which runs a sex trafficking website, Backpage.com
 
This story unfolded a couple of weeks ago, when Times columnist Nicholas Kristof wrote a column highlighting the fact that underage girls in New York were being forced into prostitution by pimps who advertised the services of these girls on Backpage.com, a classifieds advertising web forum where users also peddle furniture and auto parts, among other things.
 
In the column, Kristof identified Village Voice Media, who also publishes the alternative newspaper the Village Voice, as the private company who owned it, but it was not apparent who were behind the company.
 
Last Saturday, however, Kristof wrote a follow-up article that revealed that Goldman’s private equity fund, GS Capital Partners III, was one of the stakeholders in the company.

“Goldman Sachs was mortified when I began inquiring last week about its stake in America’s leading Web site for prostitution ads. It began working frantically to unload its shares, and on Friday afternoon it called to say that it had just signed an agreement to sell its stake to management.”

According to Goldman Sachs spokesperson Andrea Raphael, the firm had already determined in 2010 that it was not "uncomfortable with the direction of the company” and thus decided this March to sell its 16% stake, which it purchased back in 2000 for $30 million.
 
Raphael did not reveal the sale price, but she did tell Reuters that the fund lost “a vast majority” of its investment.
 
Of course, it is unlikely that Goldman knew about the illicit goings-on at Backpage.com. As Kristof writes:

Let’s be clear: this is a tiny investment by a huge company, and I have no reason to think that Goldman’s top executives knew of its connection to sex trafficking. Goldman prides itself on its work on gender: its 10,000 Women initiative does splendid work supporting women in business around the globe.

With the Greg Smith controversy over and this potentially embarrassing case now resolved, the Goldman public relations team must be praying hard that April will not be quite as sensational as March was.
POSITION:  No positions in stocks mentioned.
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