Tuesday, 22 July 2014
Last updated 17 min ago
May 10 2010 | 4:12pm ET
Settlements with the U.S. Securities and Exchange Commission generally include the bland phrase that the settling party neither admits nor denies any wrongdoing. But a deal with Goldman Sachs over the fraud charges leveled by the regulator could break the mold.
While Goldman has publicly denied the charges stemming from a collateralized debt obligation it structured and marketed for hedge fund Paulson & Co., it has already begun informal talks with the SEC about a resolution of the case. The Wall Street giant has reportedly determined that it must make a deal with the SEC, rather than have the matter go to trial.
Part of that resolution may include Goldman acknowledging negligence or poor processes in exchange for the SEC’s agreement to drop the more serious fraud charges. Any deal could cost Goldman as much as $5 billion.
The SEC has accused the bank of failing to disclose to investors in a $1 billion CDO, ABACUS-AC1-2007, either Paulson’s role in the selection of securities that went into the CDO or of the hedge fund’s plan to short the CDO, which it did through credit-default swaps bought from Goldman. Paulson paid Goldman $15 million to structure and market the vehicle.
On Friday, Goldman announced strong results, and the bank’s shareholders re-elected CEO Lloyd Blankfein with 95% of the vote. But Goldman has taken a step to assuage public and regulatory action, setting up a new board-level committee to promote the firm’s “client focus and culture of ethics,” as well as to improve the firm’s transparency.
The business standards committee will not include any of Goldman’s senior executives empowered to offer “detailed and comprehensive” recommendations to the firm.
“We understand that there is a disconnect between how we as a firm view ourselves and how the broader public perceives our role and activities in the market,” Blankfein said.
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…