SEC Should Take Goldman Sachs Olive Branch and Run

Eddie Braverman's picture
Rank: The Pro | 21,117

It's being reported that Goldman Sachs has opened a back channel of communication with the SEC, and may be offering to cop to a lesser plea and pay a fine in order to make the Abacus fraud case go away. If there's anyone with any brains at the SEC (and that's a big "if"), they'd take whatever deal Goldman Sachs is willing to make and put one in the WIN column.

I say this not because Goldman Sachs isn't guilty of at least heinously unethical behavior and probably some semblance of fraud, but because the SEC can't win this case and losing it might be the end of the SEC altogether. I've got no great love for the SEC, and certainly no respect for their questionable ability to prevent even obvious fraud (Madoff), but there has to be a cop -- even if it's a Keystone Cop. Another high-profile loss and it's all over for them.

A settlement is a win for both parties. The feds get their victory lap, and Goldman Sachs gets off without admitting guilt of fraud. Goldman Sachs stock has dropped 20% since the charges were revealed, so obviously the bank would like to mitigate that. And it's also a step in the right direction PR-wise.

The move is part of Goldman's detoxification strategy as it attempts to head off aggressive attacks on the banks from politicians and pressure groups. The bank is now also considering appointing a handful of outsiders to its new high-profile ethics and standards committee, which will be charged with cleansing the bank's reputation.

Smart move on Golman Sachs's part. Now we'll see how smart the SEC is.

Comments (9)

May 10, 2010

How is a settlement a win for Goldman? They'd be admitting fault - telling clients that they favor some over others.. clients who drive their revenue streams and pay their bonuses..

On the other hand bowing to populism will only invite more fraud charges and further validate the notion that they are evil..

I suppose the other question is why settle if you haven't done anything wrong?

ambition is a state of permanent dissatisfaction with the present.

May 10, 2010
JimSimons:

How is a settlement a win for Goldman? They'd be admitting fault - telling clients that they favor some over others.. clients who drive their revenue streams and pay their bonuses..

On the other hand bowing to populism will only invite more fraud charges and further validate the notion that they are evil..

I suppose the other question is why settle if you haven't done anything wrong?

I think the firm has plateaued. Whether or not they did anything wrong, potential counterparties are going to feel a lot more comfortable engaging in a transaction with a dumber firm.

May 10, 2010
IlliniProgrammer:
JimSimons:

How is a settlement a win for Goldman? They'd be admitting fault - telling clients that they favor some over others.. clients who drive their revenue streams and pay their bonuses..

On the other hand bowing to populism will only invite more fraud charges and further validate the notion that they are evil..

I suppose the other question is why settle if you haven't done anything wrong?

I think the firm has plateaued. Whether or not they did anything wrong, potential counterparties are going to feel a lot more comfortable engaging in a transaction with a dumber firm.

I keep thinking back to a two-part program PBS did on Goldman a few months ago. At one point, the reporter stops to grill some Joe Trader on on the sidewalk about Goldman's ethics/lack of ethics, and the trader tells him, when the brightest of the whiz kids, their pockets stuffed with cash, want to sell you something, it's your responsibility to be very suspicious.

May 10, 2010
JimSimons:

How is a settlement a win for Goldman? They'd be admitting fault - telling clients that they favor some over others.. clients who drive their revenue streams and pay their bonuses..

On the other hand bowing to populism will only invite more fraud charges and further validate the notion that they are evil..

I suppose the other question is why settle if you haven't done anything wrong?

Exactly what I've been thinking; you put it well.

May 10, 2010

Edmundo, I think Goldman is fearing that this turns into a mudslide and that unless they settle with the SEC, new evidence will emerge from the DOJ and the SEC that will force further lawsuits. It's not a question of the SEC giving in as much as it is exposing the Goldman money machine... My opinion is the SEC go through with it and bring to light the possible injustices that maybe underlying the Goldman business model, even if it does lead to defeat; this will most certainly unfold into a public outcry and force more public involvement into these heavily guarded "investment banks" ie Hedge Funds.

Goldman has even indicated that it is in danger of more lawsuits (see link)
http://dealbook.blogs.nytimes.com/2010/05/10/goldm...

May 10, 2010

As much as I want to agree with you, MezzKet, I don't think the SEC can afford another black eye, and I think they know it. Watching Cioffi and Tannin walk after being warned for years about Madoff and doing nothing about it have all but nailed the SEC coffin shut. Losing a high-profile fraud case against a company the whole world knows is guilty would be the end of the SEC.

May 10, 2010

Another great post....

I guess if you're a trader in the US (coughmacough) you may want the SEC to go under, so my vote is for Goldman Fighting it.

I mean if OJ can get away with murder, Goldman should be able to get away with this.

Did anybody watch that Oprah special about that foster mother that starved those three adopted kids, locking them in the attic when people came over? She's out walking the streets right now after serving 5 of a 7 year term and all we hear about in the media is Goldman Sachs and how evil they are for selling shit CDOs to a company that should have done due diligence on the underlying assets.

^ That about sums up American Media.

May 10, 2010
m.c.trader:

Another great post....

I guess if you're a trader in the US (coughmacough) you may want the SEC to go under, so my vote is for Goldman Fighting it.

I mean if OJ can get away with murder, Goldman should be able to get away with this.

Did anybody watch that Oprah special about that foster mother that starved those three adopted kids, locking them in the attic when people came over? She's out walking the streets right now after serving 5 of a 7 year term and all we hear about in the media is Goldman Sachs and how evil they are for selling shit CDOs to a company that should have done due diligence on the underlying assets.

^ That about sums up American Media.

Yeah, its very funny to see all the outrage over this.
Who lost? A party that chose the securities in the deal and a german bank.
And people are acting like goldman is ripping off every american with this deal.
What the hell is wrong with people?

May 10, 2010
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