03.30.09, 12:56 PM EDT
By Joseph A. Giannone
NEW YORK, March 30 (Reuters) - Goldman Sachs Group Inc
Proxy documents filed with the Securities and Exchange Commission Friday also showed that Chief Executive Lloyd Blankfein and other officers, though forgoing 2008 bonuses, received substantial returns from exclusive investment funds.
Goldman disclosed it purchased employee fund interests from Palm for $38.3 million and from Winkelried for $19.7 million to help them 'meet their liquidity needs,' a Goldman spokesman said. Without those deals, two of the bank's largest stockholders may have raised cash through stock sales.
'Neither we nor the executives involved thought it was in the interest of the firm for them to sell shares in an extraordinarily turbulent market,' a spokesman said. 'We thought it would send the wrong signals.'
Winkelried, 49, is the second-largest individual Goldman stockholder at 2.8 million shares, according to the proxy. Palm is the third-largest.
Winkelried cashed out roughly 30 percent of his employee fund holdings, while Palm sold 25 percent. Goldman chose which stakes it wanted and negotiated the price.
The decision to buy the executives out was made in early September, before Goldman accepted $10 billion in government funds, the spokesman said.
Speculation has swirled about the circumstances surrounding Winkelried, 49, since the veteran trading and investment banking executive placed a Nantucket, Massachusetts, estate on the market last fall for $55 million.
Last month, Goldman announced that Winkelried would retire, effective Tuesday. There was market talk that Winkelried, who also owns a house in Short Hills, New Jersey, and a horse ranch in Colorado, had been squeezed by falling investments.
These unusual internal dealings shined a spotlight on Goldman's investment pools, which let employees participate in Goldman's merchant banking, venture capital, real estate and other funds.
The proxy said shares in 2008 funds were purchased by Goldman for the same amount executives put in. Shares in private equity and hedge funds were bought at a discount.
Goldman explained that it offers up to $500,000 of financing to each employee across all funds.
The bank said last year it continued to provide loans to officers, spouses and affiliates who invested in vintage 2000 funds that offered a fixed return.
Earlier this year, Goldman offered to buy out fund stakes to provide cash for employees whose money was tied up in long-term investments, such as Goldman's Whitehall real estate fund. Buyouts were made at an undisclosed discount.
Late last year, Goldman's top executives announced their decision to give up all cash and stock bonuses in response to public outrage over Wall Street compensation amid the mounting cost of the bailout, rising unemployment and slowing economy.
Yet the proxy also showed that Goldman's partners and top executives still received lucrative returns from these employee funds, offered under favorable terms.
Blankfein received $11.3 million of distributions from these funds last year, while Winkelried received nearly $5 million. Palm received $10.9 million while Gary Cohn, soon to be Goldman's sole president and chief operating officer, received $7.4 million of distributions.
Such payments are considered investment returns and not included in annual compensation figures.
Last year Winkelried received a cash salary of $600,000, but no new stock or option awards. The bank said he earned $2.5 million from stock awards granted for prior years. Compensation overall fell to $3.4 million from $71.5 million a year before.
As part of the bank's $5 billion preferred stock investment from Warren Buffett's Berkshire Hathaway Inc
Executive pay has become a lightening rod since the U.S. government stepped in to bail out the banking system last fall. Goldman in October received $10 billion of capital from the U.S. Treasury Department's Troubled Asset Relief Program, though the money came with executive pay caps.
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