Goldman’s $550 Million SEC Settlement

The SEC announced this afternoon that Goldman Sachs agreed to settle, for $550 million, the civil lawsuit against it alleging materially misleading disclosures in circulars for some mortgage-backed securities it hawked.  As I wrote on this blog, in a post of April 19 called SEC v. Goldman as a Simple Case, the case was simple. 

In a bruising Consent to a Final Judgment in the federal case against it, Goldman acknowledges the point I made that makes the case simple.  Its marketing circular said the reference portfolio was “selected by” the independent firm, ACA Management LLC, when in fact Paulson & Co. Inc., an interested party, played a role in that selection. 

Within 30 days, Goldman must pay investors it misled by the marketing materials: $150 million to Deutsche Bank and $100 million to the Royal Bank of Scotland (known as ABN AMRO Bank when it bought Goldman’s securities).  It must pay another $300 million to the SEC.  

The SEC’s press release headlined that this amount set a “record” for the agency and is non-trivial even for a firm of Goldman’s size.   Its enforcement chief, Bob Khuzami, boasted that “half a billion dollars is the largest penalty ever assessed against a financial services firm in the history of the SEC.”

In addition to the cash outflow, Goldman agrees to extensive business practice and internal governance reforms.  These include specific requirements for expanded oversight of internal product review; legal oversight of marketing materials, by internal and outside counsel; internal auditing; and education and training.  It must file with the SEC special certifications of compliance with these requirements, which Goldman must maintain for three years. 

Goldman also agrees to cooperate fully with the SEC in other ongoing investigations and litigation, including putting Goldman employees at the SEC’s disposal.  That’s important because, though this settles the case for the firm, the SEC’s  litigation against the Goldman man behind the misleading securities sale, wisecracking Fabrice Tourre, continues.  

It was a simple case and this is a simple way to end it, especially with Goldman’s express acknowledgement of its misleading materials.   As the Wall Street saying goes, though, there’s rarely only one cockroach in the kitchen.  The SEC enforcement team is on the beat under Chair Mary Schapiro, a big improvement over her predecessor Chris Cox, whom I criticized repeatedly on this blog for regulatory laxity.  Hats off to the diligent SEC team.

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2 Responses

  1. Query says:

    I’ve read elsewhere that the $550m settlement is a “record” only if a number of qualifiers are thrown in. If the case was so “simple” to prove then why didn’t the SEC demand more, either in terms of money or stronger admissions by Goldman about the error of their ways? (Note: having read your prior post, I am convinced that you are right and SEC could have made out a case on that basis alone. So I’m wondering why SEC didn’t press matters more).

  2. Lawrence Cunningham says:

    Query:

    Thanks. My posts spoke to the simplicity of Goldman’s liability, not to the remedy. But I think that’s simple too. Investor losses are covered and a fine doubling the total imposed. That seems reasonable and simple.

    I don’t like the popular talk, making it seem complex, disputing whether $550 million is a mere slap on the wrist or an inadequate slap in the face.

    It’s a simple case on liability and remedy. Public discourse would benefit from seeing it that way.