Goldman Settlement Of Paulson CDO Suit Pegged At $621M

May 28 2010 | 10:54am ET

It could cost Goldman as much as $621 million to settle the Securities and Exchange Commission’s charges against it, a Sanford C. Bernstein & Co. analyst said yesterday.

The Wall Street giant could be hit with a $250 million fine and $371 million in restitution of clients who lost money in the collateralized debt obligation in question, allegedly structured and marketed on behalf of hedge fund Paulson & Co., Bloomberg News reports. While such a payout could cut the firm’s 2010 earnings by more than 5%, it is significantly less than the $1 billion to $5 billion that Fox Business suggested it could be on the hook for earlier this month.

“While this would be painful to Goldman, we believe it would allow both Goldman Sachs and the SEC to walk away declaring ‘victory,’” Brad Hintz wrote to clients. “Certainly Goldman wants this case settled. Its management has stated that it wants a ‘normal’ relationship with its regulators.”

Goldman has denied any wrongdoing in the case. According to the SEC, Paulson paid Goldman $15 million to structure and market the ABACUS-2007-AC1 synthetic CDO and played a “significant role” in choosing the residential mortgage-backed securities that went into it. The New York-based hedge fund then shorted the CDO, buying credit default swaps from Goldman itself.

Paulson itself has not been charged with any wrongdoing.

Goldman has since been buffeted by a series of shareholder lawsuits. The firm has reportedly decided that it must settle the charges, but wants the SEC to drop the fraud charges against it.

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