Research Ombudsman at Goldman

Goldman Sachs Group Inc. on Tuesday tapped E. Gerald Corrigan, former president of the Federal Reserve Bank of New York, to prevent conflicts of interest by the firm’s research analysts.

Goldman also said it expanded its board’s audit and compensation committees to “assure the integrity” of research generated by analysts at the third-largest securities firm, as ranked by capital.

The steps came as Merrill Lynch & Co. agreed to pay a $100-million fine and reorganize its research division to settle allegations that its analysts misled investors by promoting shares of companies to win or retain investment banking business.

Goldman said it was acting because it wanted “to help restore confidence in our markets and institutions.” Analysts must be “rigorous in reaching and stating their own objective opinions,” Corrigan said.

Goldman is on a list of major brokerages under investigation by New York Atty. Gen. Eliot Spitzer, who brought the action against Merrill.

Unlike Merrill, Goldman doesn’t have brokers who work for small investors. It caters primarily to institutions and individual clients with $25 million or more to invest.

The firm was the largest or second-largest arranger of stock sales and mergers from 1999 to 2001.

“What we’re doing is pretty consistent with what the attorney general is getting from Merrill Lynch,” said Bob Steel, a Goldman vice chairman who oversees equities, fixed income, currency and commodities.

Asked whether he thought Goldman would have to pay a fine similar to Merrill’s, Steel said he had “no opinion.”

Steel said analysts will continue to provide a needed service.

“Research does a lot of really good things for investment banking. Sometimes we get the initial public offering because analysts get to the company first; sometimes we turn business down because analysts tell us it’s not a good company,” Steel said. Corrigan “will meet with the department and the individuals and give them a vehicle to cry out if they feel things are not right.”

Corrigan, 60, who has worked at Goldman since 1994, will report to Chairman Henry Paulson in the newly created position of investment research ombudsman.