Corporate Governance

The SEC's Goldman Settlement- Who Really Won?

By Tamar Weinrib

On July 15 the SEC announced its record-setting settlement of the enforcement action it filed against Goldman Sachs last April. The settlement resolves only the charges against Goldman Sachs itself; litigation continues against Fabrice Tourre, the only Goldman employee named as a defendant in the civil-fraud charges leveled against Goldman Sachs.

In its agreement with the SEC, Goldman "acknowledges" that the Abacus marketing materials "contained incomplete information" and that it was "a mistake" for the materials to state that the Abacus reference portfolio was selected by ACA Management without disclosing the role of Paulson & Co or that Paulson?s economic interests were adverse to those of the CDO investors. The agreement further states that Goldman "regrets" the omission of this information.  This admission however was clearly and cleverly crafted by Goldman's lawyers to allow for a denial of liability in other pending class action suits against the company.  It notably omits any mention of any misrepresentations in the financial statements and does not admit to fraud.  Goldman also agrees that it will not make any public statements "denying, directly or indirectly, any allegation in the complaint or creating the impression that the complaint is without factual basis." However, this agreement does not affect Goldman?s "right to take legal or factual positions in litigation or other legal proceedings in which the Commission is not a party."

This agreement reflects both the SEC's need to achieve a gargantuan settlement that will restore some shine to a reputation severely tarnished following the Madoff debacle and Goldman's need to settle this dispute as quickly as possible without giving up too much in the way of money or information.  The $550 million settlement amount is pocket change for Goldman so though this was a "record-breaking" settlement for the SEC, query how much punishment was actually meted out.  The SEC gave Goldman the opportunity to avoid turning over potentially incriminating documents about the ABACUS deal, other CDO transactions and the failure by Goldman to disclose the Wells Notice it received after the SEC initially launched its investigation.  Not exactly a victory for the victims of Goldman's fraud.

Full post as published by PomTalk on July 21, 2010 (boomark / email).