The Classic Liberal Blog

An update on the Goldman Sachs fraud charges ...

The SEC announced a $550 million settlement with Goldman Sachs, just 2 hours after the Senate passed a new financial regulations bill. Please excuse me for being a little suspicious ...

Goldman Sachs ‘Victory’ Ushers Change for Wall Street

Goldman Sachs Group Inc.’s $550 million settlement with U.S. regulators yesterday will benefit the firm by ending three months of uncertainty at an affordable price. Now the rest of Wall Street begins calculating the cost.

Investors welcomed the deal with the Securities and Exchange Commission, saying the company won key points: The cost was below some analysts’ estimates of at least $1 billion; no management changes were required; and Goldman Sachs said the SEC indicated it doesn’t plan claims related to other mortgage- linked securities it examined. The stock’s late surge on anticipation of a settlement yesterday added more than $3 billion to the company’s market value, and it climbed further after New York trading closed.

“You’d have to look at it as a victory for Goldman,” said Peter Sorrentino, senior portfolio manager at Huntington Asset Advisors in Cincinnati, which manages $13.3 billion including Goldman Sachs shares. “This takes a cloud off the stock.”

“It is highly suspicious, and it makes the SEC now look like it is totally politicized,” said Paul Atkins, a former Republican SEC commissioner who is now a financial services consultant.

While the SEC touted the $550 million settlement as the largest it ever levied against a Wall Street firm, it fell short of some analysts’ estimates for a $1 billion fine. Hintz, who estimated the agreement will shave 93 cents from the firm’s earnings, said he had predicted it would cost $1.05 per share.

For Goldman Sachs, the cost represents approximately 14 days’ worth of earnings, based on first-quarter profit. Blankfein, who was awarded a record-setting $67.9 million bonus for 2007, has stock in the firm that’s worth almost $490 million, based on the firm’s last proxy statement.

Goldman Sachs did acknowledge that "its marketing materials were deficient," but did not admit to any wrongdoing. Thus, shielding themselves from individual investors who won't be able to use the acknowledgement to bring any suits of their own. Then, to top it all off, the SEC agreed not to pursue Goldman over any other mortgage-related securities

All for a mere $550 million ... Nice deal, uh?

I’m just a banker doing God’s work. -- Lloyd Blankfein, Chief Executive Officer and Chairman of Goldman Sachs

But Who Won? Sizing Up Goldman’s Deal With the SEC

In regard to the acknowledgement — the concession by Goldman that its marketing materials were deficient — sources seem to agree that both sides got something. Goldman essentially admitted to negligence, not to fraud. Henning says that individual investors likely won’t be able to use the acknowledgment to further their own suits. Had Goldman admitted to fraud — that is, admitted to having a bad intent rather than just having made a mistake — the plaintiffs bar likely would be preparing their suits right now.

“It’s a bit nuanced,” said Rao, referring to the “we messed up but we don’t admit wrongdoing” stipulation. “But from a legal perspective, it makes sense. There’s a significant difference between negligence and fraud.”

The SEC says $250 million of the settlement will go to victims of the uh, "deficient" investments," while the (Goldman Sachs) Treasury Department will collect the remaining $300 million.

"Nuanced?" Yeah, right. More like a friendly deal brokered between 2 partners.

I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the Bank. You tell me that if I take the deposits from the Bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I have determined to rout you out and, by the Eternal, (bringing his fist down on the table) I will rout you out. -- President Andrew Jackson

Yep. In Goldman Sachs (and the Federal Reserve) We Trust.