Bailout

Does Justice care if Goldman settles its SEC suit?

By Felix Salmon

Why did Goldman stock fall so far today? It’s pretty standard practice for SEC complaints to get forwarded over to Justice, so the news that Justice was looking at Goldman could hardly have come as all that much of a surprise to the market. But perhaps Justice isn’t looking at Abacus: if it’s looking at Timberwolf instead, then that’s a whole new can of worms for Goldman to deal with, and would help turn one bad deal into a fully-fledged pattern of criminal behavior.

So while Henry Blodget is right to say that the falling share price will increase the pressure on Goldman to settle with the SEC, I’m not sure he’s right when he says that “it could also ease the pressure on prosecutors to file criminal charges against the firm.” Now that Justice is looking at the firm, it’s going to make its own decisions — and if it files a criminal case against Goldman, that’s going to be devastating for the firm whether it has settled with the SEC or not.

Full post as published by Macroprudential on April 30, 2010 (boomark / email).