Tesla is updating the look of the Model S to make it more closely align with the Model X SUV. It announced Thursday, June 9, 2016 plans to offer a cheaper option of the Model S.
Courtesy of Tesla

Some think the timing was a little too convenient.

By Lucinda Shen
May 19, 2016

Twitter thinks something smells a little vampire squid-y.

On Wednesday, Goldman Sachs gs got a social media smackdown for signing on as a lead underwriter of a $2 billion offering of Tesla Motors tsla stock, just hours after the investment bank’s Tesla analyst upgraded the company to a “Buy” for the first time in three years. Goldman had previously rated the company a “Hold.” But on Wednesday morning, Patrick Achambault upgraded the stock and said Tesla’s shares could reach $250. Shares started the day at at just under $205.

That afternoon, Goldman was named the lead “book runner” for a $2 billion offering of Tesla stock. The electric car company is planning on using the money to finance its accelerated car production plan. For Goldman, the offering could generate nearly $50 million in fees, which Goldman would have to split with Tesla’s other underwriters.

Hours after the deal was announced, critics immediately took to Twitter and lambasted Goldman, saying the timing of the upgrade seemed a tad too coincidental:

 

Others seemed to doubt any collusion, saying such a move by Goldman would be unnecessarily risky and blatant. Wall Street firms paid billions in fines following the dotcom bust to settle a number of charges related to their research operations, including promising positive stock ratings to win lucrative investment banking deals. In the wake of that settlement, new rules were set, and banks were forced to physically separate the two departments and insulate analysts by limiting communication between the two groups.

Other investment banks have run into trouble recently because of their research departments. Earlier this month, Stephens was fined $900,000 for its firm-wide internal “flash” emails sent by research analysts which could have included nonpublic information regarding the companies they cover. That information could be misused by sales and trading personnel, FINRA said.

That said, while perhaps improper, the rules about whether an investment bank can upgrade shares of a company in which it is participating in a secondary offering of its stock, like the Tesla deal, are murky. And it’s become murkier recently. Four years ago, Congress passed the JOBS Act, which, among other things, rolled back many of the prohibitions against analysts working together with investment bankers to land deals when it comes to so-called emerging growth companies. Tesla, because its revenue is over $1 billion, does not qualify as an emerging growth company, but it’s still not an easy call to say Goldman broke any rules.

Analysts at an investment bank doing a stock offering for a company, or even pitching doing a stock offering, are allowed to upgrade the shares of that company, as long as they haven’t been part of pitching the deal. There is no sign that Goldman’s Tesla analyst Achambault was part of the team pitching the stock deal. In fact, Achambault in his note predicted that Tesla would have to likely soon raise $1 billion in new capital. The offering is actually expected to raise $1.4 billion for the company. Musk is selling about $600 million worth of his shares as well.

Tesla also named Morgan Stanley as co-book runner, with Deutsche Bank, Citigroup, and Bank of America Merrill Lynch as book-running managers.

But even if Achambault was in the room at the same time with Goldman bankers and Musk and the rest of Tesla’s executive time, Achambault, and Goldman, may have not broken any rules. Analysts are still allowed to be in pitch meetings as long as lawyers are also present in the meetings to “chaperone” the analysts and make sure they are not being used as part of the pitch.

A Goldman Sachs representative told Fortune that no such meeting between the potential underwriters, Archambault, lawyers, and Tesla occurred for the recently announced stock offering.

“Our Research is independent. We followed all of our standard policies and procedures with respect to our research publication on Wednesday,” the representative said in a statement.

Despite Goldman Sachs’ best efforts, it’s unlikely that the skepticism will abate. Banking, after all, doesn’t have the cleanest history.

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