Goldman’s win

By Felix Salmon
July 15, 2010
Goldman Sachs has come to a settlement with the SEC: it will pay $300 million in fines, and another $250 million in restitution, according to the NYT. There's no indication that any Goldman executives are being forced out: this is a purely financial settlement, and does not even include Goldman admitting any wrongdoing.

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Goldman Sachs has come to a settlement with the SEC: it will pay $300 million in fines, and another $250 million in restitution, according to the NYT. There’s no indication that any Goldman executives are being forced out: this is a purely financial settlement, and does not even include Goldman admitting any wrongdoing.

This is surely a massive win for Goldman, whose entire business was at stake if it was found guilty of serious wrongdoing. The company’s shares are soaring in after-market trade, and although they won’t approach their pre-case levels any time soon, Goldman can now begin to distance itself from Abacus noise, and try to put the whole sordid tale behind it.

In financial markets, memories are short, and the effects of this case and its settlement will fade away quite quickly. Clients will probably never trust Goldman as much as they did before the crisis, but that was true even before the SEC brought its case. And Goldman is putting a lot of effort into becoming much more transparent on the conflicts-and-ethics front:

A “business standards committee” is in the middle of an internal review that will examine everything from Goldman’s management of conflicts of interest to product suitability for clients. A quarter of the firm’s 400 partners will contribute to the report, which will be handed to a board committee in December. The findings will be made public.

This settlement is surely testament to the extraordinary powers of persuasion which still exist within Goldman Sachs, but some kind of settlement was always likely: the SEC didn’t want to risk bringing a complex case like this in front of an inherently-unpredictable jury. I’m just surprised that they didn’t even get any management changes, or any kind of mea culpa. The risk, of course, is that Goldman’s victory here will only serve to exacerbate its arrogance. Could the Squids of West Street become even more insufferable, now?

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Comments
15 comments so far

Is this as close as we will get to a mea culpa from you for your over-the-top, hysterical analysis when this case first broke? You pontificated with minimal understanding of the facts of the case and minimal comprehension of bespoke mortgage credit derivatives. Here’s a napkin for the egg on your face.

Posted by TinyOne | Report as abusive

In ethics, money and trust, Goldman’s win is society’s loss. That much is now settled. By the hyena-like shrieking of their laughter shall ye know the way to the bank.

Posted by HBC | Report as abusive

Looks like the SEC blinked! Note that this came one day after Obama met with Buffett.

Obama Meets With Buffett to Discuss Economy, Jobs
http://www.washingtonpost.com/wp-dyn/con tent/article/2010/07/14/AR2010071405107. html

Coincidence? Not a chance. Goldman’s special dividend payments to Buffettt have proven to be the best investment of all time.

Posted by DanHess | Report as abusive

Apparently the meeting yesterday between Buffett and Obama was a very long meeting, and it was initiated by Buffett, not Obama.

Posted by DanHess | Report as abusive

This was always the most likely outcome. The SEC prefers to settle cases rather than litigate, especially against powerhouses such as GS. It conserves resources and allows the SEC to pursue additional cases with the time, money, and labor it would have expended on suing GS. Likewise, GS had enormous incentives to settle the case in order to draw a line under what was a serious PR disaster. And it is standard procedure in SEC settlements for the settling party not to admit wrongdoing – admission of guilt in such settlements is almost unheard of. I don’t see how anybody could have been surprised by this outcome.

Posted by slowlearner | Report as abusive

While it’s true that this sort of settlement has historically been standard procedure (at least in recent times – I wonder if it was always thus?), here’s why we should be surprised: we just had a rather large financial crisis, one of whose prime beneficiaries appears to have been Goldman Sachs. How naive of me to think that perhaps the time for business as usual had passed. And Felix, if you actually think any jury empaneled in this country could have been persuaded to acquit Goldman Sachs of any charge short of serial murder you are living on a different planet. The SEC decides not to go forward because most of its employees ultimately want to work for Goldman or somebody else on Wall Street and an ugly trial would sully those prospects.

Posted by specialk4000 | Report as abusive

What slowlearner said.

It was an extremely weak case and a small, token (by GS standards) settlement seemed preordained. Consider the $550M as a political payoff or extortion money for the SEC to shut up and go pester someone else.

The more amusing part is that IKB is being rewarded $150M of the “restitution” for, well, managing to hire incompetents.

Posted by enoriverbend | Report as abusive

Basically there was never a case to answer and GS paid extortion money to the goverment to make them go away. The SEC doesn’t care because the finReg bill is now passing and they don’t need a punchbag anymore.

Posted by Danny_Black | Report as abusive

specialk4000, the real reason is that there was never a case to answer and this case was political ammunition to pass a worthless bill. That bill is now passing so no need to keep suing GS, the SEC just took the blood money and ran.

Posted by Danny_Black | Report as abusive

slowlearner, the fact is that this case was always rubbish and the SEC was relying on a hysterical press and ignorant general population to not understand what happened, ignore that at the time of the trade it was not obvious that the world was coming to an end and hope people would judge based on 20-20 hindsight – which turned out to be a pretty good prediction on what would happen.

Given at one point it looked like GS was in serious danger of collapse, this settlement was a non-brainer for them.

Posted by Danny_Black | Report as abusive

Danny Black, that is hog wash. There is so much corruption on Wallstreet and it is so common place, no one wants to call it anything but what it is… legalized book making. (yet marketmaking sounds so much more ethical doesn’t it?)

I hope this slap on the wrist is followed by morecivil suits. Their cohorts (and other others) are happily crowing it was a trumped up case, but it was just a poorly handled one.

They should have fined Goldman that much simply for dumping documents on the SEC to distract them.

Posted by hsvkitty | Report as abusive

hsvkitty, firstly GS dumped those docs on FCIC not the SEC after they complained about not delivering all the docs.

Exactly what corruption you complaining about? What there is is greed in the midst of a bubble and when you follow the trail of how is driving that greed it leads to the retail investor….

Posted by Danny_Black | Report as abusive

Yes Danny, sorry, it was FCIC dump.

CDOs were flagrantly touted and misrepresented (Even Mr Fab was in awe of their complexity) and designed to be complex and riskier then most were aware.

Greed in the midst of a bubble? The fat cat greed is always there and has to be bridled. Without Financial regulations, it just gets more creative and this last bit of regulation is just a hurdle with loopholes to find.

What corruption on Wallstreet am I complaining about? All of it! Sure retail investors fell for high yield risk as did those burned by the ponzi schemes. So you are saying they deserved to be cleaned out because they were greedy? Madoff says so too, as does Fab. They should have been more careful, but then TRUST was also supposed to be part of the equation, although that term seems to be as important as ethics in finance. (relatively non existent which is why corruption is rampant)

http://baselinescenario.com/2010/04/20/c linton-rubin-summers-derivatives/

And then we have people like Rubin who insist after the fact that he was all for derivative regulation because he knew the risks, yet voted in favour of his previous benefactors when he quashed regulations which could have prevented the crisis.

http://www.huffingtonpost.com/2010/04/20  /rubin-i-actually-supporte_n_545113.htm l

There is a long trail of complicity and greed, but I was hoping that starting at the top would at least stop the fatcats from doing it again and again. Meanwhile, the little guys involved are doing time.

Posted by hsvkitty | Report as abusive

Oh and a reminder that the advice of Brooksley Born was ignored because she understood that unregulated risky derivatives could not be left unregulated due to lack of ethics on Wallstreet and greed.

As Born recently observed: “Recognizing the dangers wasn’t rocket science … but it was contrary to the conventional wisdom and the economic interests of Wall Street”.

Is there any wonder there is a hue and cry that a corrupt Wallstreet runs the Government? The URL’s above and this GS slap on the wrist and an ineffective SEC does nothing to counter those beliefs. Nor does the watered down regulations.

Posted by hsvkitty | Report as abusive

When Phil Gramm and other agents of satan went about repealing Glass-Steagall and de-fanging CFTC they were essentially – no, deliberately, decriminalizing a process that would lead to mass impoverishment on an unprecedented scale. It is now but the flimsiest of clausal deniability of wrongdoing that stands between Goldman Sachs and a firing squad.

If Congress took the same “liberal” approach to decriminalizing hard narcotics, at least Americans could afford the mind-numbing substances it would take to be completely chill with the perpetrators and their unctuous apologists.

Posted by HBC | Report as abusive
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