Trials & Litigation

Who Really Won? Record $550M SEC Fine No Big Deal to Goldman Sachs, Says NY Times

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Goldman Sachs agreed to pay a record-breaking $550 million fine as part of a settlement announced last week with the U.S. Securities and Exchange Commission of charges that the bank misled investors when it offered mortgage-related securities that turned out to be toxic in a dismal real estate market.

But arguably the banking titan still got the best of the deal, avoiding both an admission of liability and the expense and delay inherent in a trial.

Goldman was never unduly concerned about the amount of a potential fine, believing that it could afford to pay, and just wanted to settle on terms that could be portrayed as something of a victory, reports the New York Times (reg. req) in a lengthy weekend analysis.

Finance professor Charles Geisst of Manhattan College tells the newspaper that the fine is akin to passing the collection plate around on Sunday to get some extra dollars for prior sins, somewhat profitable but unlikely to change behavior:

“I think it will be business as usual right away,” he says of Goldman. “They’ll just surround themselves with extra lawyers.”

However, another expert, partner Pravin Rao of Perkins Coie, says settling the “aggressive” prosecution with a big fine was advantageous for the SEC, too.

The investors who purchases from Goldman were sophisticated and should have known what they were getting into, Rao tells the ABA Journal. And taking the case to trial would have been risky, especially as anger over the economy dissipates during the year or two it would take to prepare.

“Once a jury gets educated, it would not have been a slam-dunk for the SEC,” says Rao, a former SEC enforcement branch chief.

Meanwhile, although the settlement has ended the case for Goldman Sachs, another defendant still remains. He is the self-labelled “fabulous Fab” Fabrice Tourre, a vice president of the bank helped create and market the investment product at issue in the SEC case, the Times notes in an earlier Dealbook article.

Tourre is on paid leave and Goldman is covering his legal defense by Allen & Overy. Why didn’t he settle at the same time as his company? Observers are wondering, but the answer isn’t yet know.

“It will be interesting to see what kind of deal he gets,” Rao tells the ABA Journal, predicting that Tourre, too, will eventually agree to a settlement. “Is the SEC pushing for him to admit to the fraud?”

Additional coverage: “Goldman Sachs to Pay Record $550M to Settle SEC Suit re Claimed Mortgage-Related Fraud” “Goldman Sachs General Counsel Got $38.3M in Midst of 2008 Crisis”

Updated at 4:41 pm to link to subsequent post.

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