Corporate & Securities Law

The Securities and Exchange Commission announced that Goldman, Sachs & Co. will pay $550 million and reform its business practices to settle SEC charges that Goldman misled investors in a subprime mortgage product.  In settlement papers submitted to the court, Goldman "acknowledged that the marketing materials for the ABACUS 2007-ACI transaction contained incomplete information.  In particular, it was a mistake for the Goldman marketing materials to state that the reference portfolio was 'selected by' ACA Management LLC without disclosing the role of Paulson & Co. Inc. in the portfolio selection process and that Paulson's economic interests were adverse to CDO investors." Goldman agreed to settle the SEC's charges without admitting or denying the allegations.

The settlement requires remedial action by Goldman in its review and approval of offerings of certain mortgage securities, including the role and responsibilities of internal legal counsel, compliance personnel, and outside counsel in the review of written marketing materials for such offerings.  The settlement also requires additional education and training of Goldman employees in the area of the firm's business.

In the settlement, Goldman acknowledged that it is presently conducting a comprehensive, firm-wide review of its business standards, which the SEC has taken into account in connection with the settlement of this matter. 

To date, the settlement has been widely criticized.  No individual sanctions were assessed and the settlement represents about 2 weeks of profit that Goldman earns from its proprietary trading operations.

Source: SEC Press Release 2010-123