'Muppet hunt' to put Goldmanin the clear

Goldman Sachs is ready to give its London office a clean bill of health after investigating claims from its former employee Greg Smith that the bank had a "toxic" culture where traders routinely boasted of ripping off their clients.

The investigation – dubbed "the muppet hunt" because Mr Smith said bankers derisively referred to clients as muppets – has not so far thrown up any revelations that would prompt disciplinary action, it is understood.

Goldman has made contact with Mr Smith and asked him to assist, but he has not taken the bank through his allegations. Instead, he is working on a tell-all book, after landing a reported $1.5m (£930,000) advance from the publishing house Hachette.

Mr Smith, a trader of equity derivatives at Goldman's offices in the City of London, stunned the bank last month by announcing his resignation in the pages of The New York Times. In an opinion piece, under the headline "Why I am leaving Goldman Sachs", he described how the bank's moral standards had collapsed over his 12 years at the firm, and he blamed the "toxic and destructive" culture on the chief executive, Lloyd Blankfein, and his deputy, Gary Cohn.

"It makes me ill how callously people talk about ripping their clients off," Mr Smith wrote. "Over the last 12 months I have seen five different managing directors refer to their own clients as 'muppets', sometimes over internal e-mail."

Mr Smith's public denunciation of the firm ignited another firestorm of public criticism of Goldman, which is already the lightning rod for anger over Wall Street's role in the credit crisis. His allegations also threatened to hit the bank where it is most vulnerable, by tarnishing its reputation with clients.

Fearful of that, Mr Blankfein launched the "muppet hunt" to scan internal email communications for disparaging comments about clients. While the scan revealed isolated references, these did not hint that Goldman traders believed they were taking advantage of their clients' idiocy to rip them off. The overwhelming majority of the references were to The Muppet Movie, which came out in the UK in February.

Goldman has also interviewed Mr Smith's former colleagues and examined his and their "360 reviews". These are the annual appraisals in which Goldman employees discuss their own performance and those of their bosses, subordinates and colleagues.

With most of the work of the investigation now done, Goldman believes it is close to being able to give the London office a clean bill of health, and has begun to have internal discussions about how to communicate its findings to a sceptical public.

The current favoured course of action is for Mr Blankfein to refer to the findings of the investigation at the bank's annual shareholder meeting on 24 May. The meeting is expected to be a raucous affair, since rebel shareholders are trying to force the company to reveal more details of its lobbying of politicians and regulators, and to change pay policies so that even former executives are financially tied to the fortunes of the bank and therefore to the consequences of the bets placed while they worked there.