Goldman beats SEC on points but leaves chink
Neither Goldman Sachs nor the Securities and Exchange Commission comes out of their slugfest looking pretty. But in settling fraud charges without admitting guilt, the Wall Street firm has beaten the regulator on points, despite a record penalty. That doesn’t mean Goldman can leave the ring just yet, though. It has conceded that its disclosure on the mortgage collateralized debt obligation at the heart of the SEC’s case was inadequate. That’s something that could rebound on Goldman and the rest of the finance industry.
Right now, Goldman has to stump up $550 million, the hardest penalty punch the SEC has ever landed on a single Wall Street target. But the firm should be able to roll with it. The settlement represents just 3.4 percent of its compensation bill last year, or the equivalent of the average annual compensation for just 1,100 of its 32,500 employees. That aside, three months in the regulatory sin bin may have taken the edge off Goldman’s appeal with clients — but that’s not clear yet.
Meanwhile settling makes the SEC’s original crusading bombast look overdone. In making its initial accusation of securities fraud the regulator seemed to be targeting an even more punishing financial blow and at least the removal of Goldman’s chief executive, Lloyd Blankfein. But the watchdog has elicited only the admission that the investment bank’s marketing materials were incomplete, along with relatively modest internal changes, some of which were already in the works.
Announcing the settlement on the day the U.S. Senate finally passed the Dodd-Frank regulatory reform bill also looks a tad convenient, though the SEC denies any connection. Rightly or wrongly, the enforcement of the case now comes over as opportunistic all along — from throwing down the fraud charges just days before Goldman’s second-quarter earnings at a time when reform efforts needed a boost, to settling them days before the firm’s next quarterly report with reform legislation on its way to the president’s desk.
All that said, landing one well-placed blow on disclosure could leave a longer-lasting scar on Wall Street. Investors who feel they’re wrongly out of pocket from buying complex securities from Wall Street are bound to pounce on that admission and file lawsuits of their own. That could leave Goldman and its rivals under attack for some time to come.