There was a time when Goldman Sachs was run by its management partners and the broker sought to build its reputation on putting clients first.

A private partnership since 1869, the bank had reputation for prudent risk-taking and elite clients, and frowned on both personal excess and conspicuous consumption as well as overt greed.

'Why is the legal line defining ethics on Wall Street'- author Steven Mandis

Yet at the time of the 2008 financial crisis, Goldman Sachs was involved in selling mortgage-backed securities, and trading against its own clients, practices that had by then become ingrained on Wall Street.

It was fined $22 million by the SEC for playing favourites with elite clients, another $7 million for failing to monitor futures accounts and charged with civil fraud over its role in the mortgage-backed securities meltdown.

Steven G. Mandis, author of What Happened to Goldman Sachs, attempted to understand the huge shift in culture that led to the bank being tainted by a series of recent scandals.

An insider who worked for the bank for 12 years, he pinpoints the defence – given by several Wall Street firms – that they were acting within the law, as the new defining mentality of the street.

“When Goldman Sachs executives testified in Congress, they pointed out that they had done everything they were legally required to,” he said in an interview with CBC’s The Lang & O’Leary Exchange.

“But why is the legal line defining ethics on Wall Street?” he asked.

Mandis said other Wall Street firms saw a similar shift, some of them much sooner than Goldman Sachs.

Regulatory change

Trading culture changed after 1999, when Washington removed the barriers between commercial and investment banking and set off a wave of consolidation on Wall Street.

Goldman Sachs clients and employees were being poached and the bank moved away from the partnership model and went public with a high-profile IPO.

Mandis blames neither the IPO, nor the new trading culture on Wall Street directly for the change, but says both contributed.

“The IPO accelerated many of the changes, and also created additional changes, but the changes had been going on since Goldman Sachs had written its business principles in 1869 which are essentially the same today,” he said.

Mandis calls this "organizational drift" and says the firm has made a conscious effort, since being sued by the federal government, to change back to a more ethical framework.

“It’s always going to be the battle of any leadership team to try to make sure the firm tries to stay as close as possible to the values that made it the success that it is today,” he said.