In-depth analysis on Credit Writedowns Pro.

Goldman may settle fraud case on lesser charge

I expected this (hat tip Scott).

Goldman Sachs is hoping to avoid the Securities and Exchange Commission’s charge of fraud by reaching a settlement on a lesser offence and agreeing to a fine of hundreds of millions of dollars, according to people familiar with the bank’s negotiating position.

Goldman, which has been accused of civil fraud over a complex mortgage-related security called Abacus, is trying to focus settlement talks with the SEC on the less serious charge of omitting or mis-stating material facts to investors.

Regulatory experts say that companies charged with fraud often seek a settlement on a lesser charge but it is unclear whether the SEC would agree to downgrade such a high-profile case.

A lesser charge would reduce Goldman’s risk of being sued by investors and help the bank avoid the reputational damage of having settled a fraud charge, according to people familiar with the situation.

People involved in the discussions say that, even if regulators agree to consider a lesser charge, Goldman would neither admit nor deny wrongdoing – a common practice among companies settling with the SEC.

Given how the SEC let Bank of America off the hook for its dealings with Merrill Lynch, I don’t anticipate the SEC will push to punish Goldman to the full extent of the law. BofA initially got away with $33 million. I would anticipate an initial settlement to be much higher here. What do you reckon: $300 million? $1 billion?  It must be a huge number given the public outcry but it won’t jeopardize Goldman’s financial health.

What about Blankfein and Fabrice Tourre.  Someone has to take the fall. One or both are gone. If it is Tourre, I imagine he will be barred from the industry.

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

7 Comments