Goldman Seeks Settlement Of Paulson CDO Probe

Jul 15 2010 | 10:52am ET

Goldman Sachs has proposed settling the Securities and Exchange Commission’s fraud suit against it and several smaller probes of its mortgage department in one fell swoop.

The idea of a catch-all settlement originated with the Wall Street giant, which has long been reported to want the fraud charge to go away. According to the SEC, Goldman misled investors in a collateralized-debt obligation it allegedly structured and marketed on behalf of hedge fund Paulson & Co. The firm allegedly failed to disclose Paulson’s role in selecting the mortgage-backed securities that went into the CDO, called ABACUS-2007-AC1, or that the hedge fund planned to short the CDO.

A catch-all settlement would both reassure Goldman’s investors and prevent the release of information that could be used against the firm in future litigation, The Wall Street Journal reports. But there remain hurdles.

For one, the SEC is investigating three other Goldman CDOs for possible conflicts of interest. Those probes are all at different stages, with the SEC unsure of what each might uncover, making a settlement difficult.

Goldman is also loath to have the fraud charge stand, even if it uses the standard settlement procedure of neither admitting nor denying it. The firm wants the SEC to drop the fraud charge, which it believes could lead to an avalanche of lawsuits.

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