Convenient timing? When the Securities and Exchange Commission accused Goldman Sachs of fraud in mid-April, the bombshell dropped just as the politics of bank reform were beginning to heat up in the Senate. Now, mere hours after the Senate voted to pass the Dodd-Frank bill, the SEC has announced that Goldman is settling the case.
Goldman will pay $300 million to the SEC and $250 million to investors, but admits no "wrongdoing."
Talk about your newsy days! Financial reform passes, BP announces that the Gulf oil leak is finally plugged, and the SEC and Goldman Sachs settle. "It's barn-door closing day," joked ProPublica reporter Paul Kiel on Twitter, and it is hard to disagree: The economy is still crushed, the Gulf is ravaged, and the damage done by Goldman's derivatives wheeling and dealing won't be erased by a couple of big checks.
The SEC says the fine is the biggest ever handed down to a Wall Street firm. But it's still chicken feed. In 2009, Goldman paid its employees around $18 billion in bonuses, alone. A half-billion to make the SEC go away doesn't seem all that painful. Especially when the only mistake the company is admitting to is "incomplete" marketing materials.
Goldman acknowledges that the marketing materials for the ABACUS 2007-ACI 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.
A mistake?! The SEC should tack on another half a billion in fines just for the sheer effrontery of that statement. The SEC accused Goldman of creating a derivative instrument that referenced crappy mortgage-backed securities that had been chosen on purpose by John Paulson, so that Paulson could then bet against those derivatives. It wasn't a "mistake" not to disclose the role of the Paulson; it was the only way to pull off the caper! If Goldman had been forthright about how ABACUS 2007-ACI had been constructed, no sane investor would have gone near it.
Felix Salmon writes that the settlement is "surely a massive win for Goldman, whose entire business was at stake if it was found guilty of serious wrongdoing." No management changes, no admission of guilt, and, on Wall Street, where memories are shorter than the time it takes to make a high-frequency trade, likely no lasting damage to the firm's reputation.