Goldman Sachs and SEC Reportedly Talk Settlement
Just days after the announcement of a federal criminal probe, Goldman Sachs is exploring a settlement with the Securities and Exchange Commission (“Goldman Talks Settlement With SEC,” by Susan Pulliam and Susanne Craig, May 7, 2010, Wall Street Journal). According to the WSJ, this signals a scaling back of Goldman’s initially combative response to the SEC charges and unsettled shareholders.
Protesters are expected to gather outside the shareholders meeting and Goldman directors are expected to discuss revising some aspects of its customer-relations policies. Also, the financial press has reported open talk in Goldman offices about life after Blankfein, suggesting a possible change in the leadership structure of the firm. Indeed, the article states: “Some executives and powerful alumni of Goldman are discussing whether Mr. Blankfein should resign to restore confidence in the company.”
All of this marks a sudden and shocking change in investors’ attitudes toward Goldman, which is, after all, making big money.
Goldman shares have declined 23% since the announcement of the SEC charges, which, in essence, are that Goldman misrepresented and failed to disclose material facts regarding a derivative deal involving toxic mortgage securities that Goldman created and sold to investors, despite privately referring to it as a “shitty” deal.
Settlement talks are preliminary and a resolution is not imminent, according to the article. There is apparently “bad blood between lawyers for Goldman and the SEC, according to people familiar with the matter.” The picture is further complicated by the raised sword of possible criminal charges against the firm – resolving the civil matter would not do much good if the firm is indicted, however unlikely that may be. Nevertheless, Goldman's lawyers reportedly believe that the company needs to try to resolve the SEC lawsuit.
Another hurdle in the settlement talks: is that Goldman officials still are furious about being blindsided by the lawsuit. The SEC apparently filed the suit without giving the company a chance to settle.
The article says that one analyst (Michael Mayo of Calyon Securities) wrote that a settlement by Goldman could approach $1 billion, which would dwarf previous settlements of $250 million paid by Bear Stearns in 2006 and $400 million paid by Citigroup in 2003.
