It’s not even a slap on the wrist. The $550 million fine agreed to by Goldman Sachs (GS) as part of its settlement with the Securities & Exchange Commission (SEC) amounts to roughly a week’s worth of trading revenue for Goldman.
Considering that the SEC put the damages to Goldman’s investors in the Abacus CDO (credit default obligation) deal, $550 million seems a bit light. Considering Goldman’s role in forcing American International Group into a government bailout, $550 million seems inadequate. Considering Goldman’s role as a key enabler of the derivative deals that almost took down the global financial system, $550 million seems laughable.
And, of course, as is usual in this kind of settlement, Goldman didn’t admit or deny the charges. That should help Goldman defend itself in any civil suits brought by investors who are looking for more than the $250 million of the fine that will go to two of the investors in the deal. By the way, in the settlement the SEC appears to have retreated from its original charge of civil fraud to a charge that reads more like negligence. According to the SEC, Goldman’s marketing materials for the Abacus deal “contained incomplete information.”
The SEC charge and the July 15 settlement may hurt Goldman with future clients. After all the central revelation from the investigation into the Abacus deal was the degree to which Goldman was willing to subordinate the interests of some clients to the company’s own self interest.
So far it’s not apparent that there’s been any sizeable defection among Goldman’s clients although it is difficult to tell since no customer is likely to trumpet that defection from the roof tops of Wall Street.
The bigger problem for Goldman may be that on early reports from JPMorgan Chase (JPM) there’s a Wall-Street-wide slow down in trading and investment banking revenue. At JPMorgan Chase net income from investment banking, for example, fell by 6% from the second quarter of 2009.
Tanerb,
If I hear one more time that “the Market/GS/Bush/Obama/etc” forced Lehman and Bear into oblivion, I’m gonna puke.
If you know anything about Subprime and Alt A lending, you’d know that both these “Investment” Banks (along with WAMU), made or bought the absolute worst loans ever made. They were going to fail, irregardless of what Larry Kudlow or any one else thinks. Bear bought Encore for goodness sakes! Yikes!!
Sorry, I meant to say “fine”, not “find”.
I agree that the gov does not have a strong case against GS. Noticing that the gov dropped “fraud
word. This is good for both, though I think the find is too high.
tANERB-nO IT IS NOT! LEH and BS went under becuase of their inappropriate use of leverage. Their own doing. As far as GS’s settlement, the Govt had a terrible case. The injured parties were 2 big boys who specialized in this and REJECTED many of the securities Paulson chose and they substituted others. GS made $16-20 million on the whole thing-Bobkes! Thruout history of Wall Street confidentiality of clients was the key and GS had no obluigation and lost tens of millions on this trade too. GS settled because the long term pain was too much to continue fighting. So all of u GS knockers, I have no freinds working or GS stock. Those are the facts!
Just another example of government by the corporations, for the corporations and of the corporations. As a nation now suborned by corporations who have bought Congress, our oversight agencies and our judicial system, citizens have to become more active in knowing who they elect and constantly monitor them. We have not lost our right to vote YET, even though corporations also now control the electoral process thanks to the recent Supreme Court ruling. Vote wisely in November if there is to be any hope for this nation to overcome the current corporate control of our government.
It is difficult to be cynical enough about this, so let’s just say it’s clear again who owns the government and the courts.
B. Ritzhold doesn’t take the Goldman settlement lightly. He says this is not good news for Wall Street.
http://www.ritholtz.com/blog/2010/07/who-steered-you-wrong-about-the-goldman-sachs-case/
Jim,
Do you know why $550 million seeems light? I have 4 words for you: “too big to fail”. Any company that can shrug off a $550 million loss like a gnat is WAY too big.
They make that much money in 15 days. That’s why it is better to be with GS than be against GS. Buy GS.
SEC also did not have a very strong case. And I am sure they did not want to open a can of worms. But the fine could have been bigger.
isnt goldman the reason bears and lehmann brothers went bankrupt? they forced market by downselling their securities. they really escaped very cheap.
Jim:
What do you think caused the “Wall Street-wide slow down in trading and investment banking? Bad economy? New regulation? Or else?