Corporate Governance

Goldman Settles

By J Robert Brown Jr.

The SEC announced a settlement with Goldman Sachs in the case arising out of the Abacus deal.  The Company will pay $15 million in disgorgement and a civil penalty of $535 million.  The firm has also agreed to certain internal reforms that contemplate review of written materials by inside and outside counsel and review of deals by a specified committee within the firm.  Goldman's consent is here.  The proposed judgment is here. 

Goldman consented (without admitting or denying) to a violation of Section 17(a) of the 1933 Act.  Because Section 17(a) can be violated through either negligent or fraudulent disclosure, Goldman did not consent to a finding of fraud.  Indeed, the language of the settlement was carefully crafted to have Goldman admit only that it used marketing materials that contained "incomplete information." As the firm stated:

• Goldman acknowledges that the marketing materials for the ABACUS 2007-AC1 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 regrets that the marketing materials did not contain that disclosure.

The SEC, therefore, received a penalty/disgorgement amount that meant business while Goldman avoided admitting to fraud.

The case is not finished.  The action against Fabrice Tourre continues.  The settlement today did not include him. 

Full post as published by The Race to the Bottom on July 15, 2010 (boomark / email).