Goldman Sachs SEC SETTLEMENT Reached -- And Stock SOARS

The Securities and Exchange Commission announced today that it has reached a settlement agreement with Goldman Sachs over the sale and marketing controversial mortgage securities. The news was first relayed via CNBC's Twitter feed. The settlement comes on the heels of Congress's passage of a sweeping financial reform bill earlier today.

From the SEC's press release on the settlement:

Securities and Exchange Commission today announced that Goldman, Sachs & Co. will pay $550 million and reform its business practices to settle SEC charges that Goldman misled investors in a subprime mortgage product just as the U.S. housing market was starting to collapse.

In agreeing to the SEC's largest-ever penalty paid by a Wall Street firm, Goldman also acknowledged that its marketing materials for the subprime product contained incomplete information...

In settlement papers submitted to the U.S. District Court for the Southern District of New York, Goldman made the following acknowledgment:

Goldman acknowledges that the marketing materials for the ABACUS 2007-AC1 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.

In April, the SEC charged Wall Street's most profitable bank with civil fraud over complex mortgage securities sold under its 'Abacaus' deals. The SEC alleged that Goldman failed to disclose the securities in the Abacus portfolio were chosen by another bank client, the hedge fund manager John Paulson, who made billions betting against the housing market. The securities were, according to the SEC, secretly designed to fail.

Still, the bank's stock surged today (scroll down for a chart) rising 4.43 percent as rumors swirled about a settlement. (The bank's stock continued rising an additional 5 percent in after hours trading.)

With a cost of roughly $550 million (plus millions in legal fees), Goldman Sachs likely came out ahead for the day, as the stock's surge added hundreds of millions to the bank's market cap. The settlement amount comes to roughly 3.4 percent of the bank's 2009 bonus pool.

As a part of the settlement, the bank will pay $300 million to the SEC and the rest will be paid out to investors that were harmed through the Abacus deals, including IKB AG and the Royal Bank of Scotland. In a statement, the bank acknowledged "it was a mistake" to fail to disclose Paulson's role in selecting the Abacus assets.

The case against Goldman Sachs vice president Fabrice Tourre, however, is expected to continue.

Reuters blogger Felix Salmon said the settlement was "surely a massive win for Goldman, whose entire business was at stake if it was found guilty of serious wrongdoing."

Check back for more details as the story develops.

Check out Goldman's stock performance today:

(Source: Google Finance)

READ the judgment:

judgment-pr2010-123

Comments

[twninja]

01:10 PM on 07/18/2010

So its like i ripped all my friends off for tens thousands of dollars and now i got caught, OK SORRY GUYS here is 10 bucks we cool now?

[munki]

11:00 AM on 07/18/2010

Don't you hate his smile...

not clear but... just not right.

[Carolab]

08:50 PM on 07/17/2010

Bill Black weighs in on the SEC's "deal" with Goldman.

Well worth watching.

http://www.youtube.com/watch?v=PklHCn8pcsE

[comicpro]

03:05 PM on 07/17/2010

This is a drop in the bucket especially considering the taxpayer gave them billions through the AIG clusterf*ck! Goldman Sachs is laughing all the way to the bank!

[Intolerantcentrist]

10:33 AM on 07/17/2010

SEC fines will not exclusively repay the taxpayer, but along with paying into the Treasury ($300,000,000), the settlement will also pay compensation to two large foreign institutions: $150,000,000 Deutsche Industriebank AG; $100,000,000 Royal Bank of Scotland N.V.
http://www.sec.gov/litigation/litreleases/2010/judgment-pr2010-123.pdf

The $550 million is not much in the way of making whole investor or taxpayer. This settlement cannot be seen as providing a penalty, so large and severe, that would prohibit Goldman from continuing to misleading investors in the future. Why? Well, putting the settlement into other relative terms makes the agree to amount appear trivial, and not much of a deterrent: 2009, $500 pledge to small business owners; the settlement amount is less than a tenth of the recent gain in Goldman stock; the settlement amount is roughly two weeks worth of Goldman profit.
http://www.propublica.org/blog/item/what-the-goldman-sachs-settlement-means-in-context

If no one is going, or will in the foreseeable future go to jail, than none of these civil actions will change anything.

[catcancook]

09:25 AM on 07/17/2010

Did anyone see where a London Hedge fund has driven up the price of chocolate up to it's highest levels in 33 yrs? These people will stop at nothing to get what they want..MONEY and they do want all of it. Something is very wrong when they are allowed to manipulate things for their own gain while ruining lives and businesses like it's a big game to them.

[Fiscalprudence]

09:28 AM on 07/17/2010

Morally or ethically wrong.....yup. Illegal....nope.
FYI...happens all the time in all markets. Not saying it is fair or right, but it is very common.

[catcancook]

09:48 AM on 07/17/2010

I'm sorry, when it goes too far and hurts people's lives and livelihoods..it's wrong. Remeber the Hunt Brothers who manipulated silver prices in the 1970's?

The pendulum has swung way over in their greedy little favor now and these Money Men...seem to stop at nothing for their greed haul.

[Fiscalprudence]

09:32 AM on 07/17/2010

p.s. 7% of total production won't even raise an eyebrow. Take a look at some of the gold production companies.

[Intelligentia]

09:04 AM on 07/17/2010

If anybody still does not believe that the whole stock market is rigged, this is the proof that it is. How does a company settle a suit for half a billion dollars and its stock gains 4%? Even a threat of litigation causes a company's stocks to take a hit; but, no, not GoldmanSachs. America, you're finished! People can speculate that it might be because they expected to be put out of business; however, the half a billion was mere operational cost that does not have any impact whatsoever on the company. So, if that were to be the case, why was its stock not higher prior to the day of the settlement? Yet, a loss of half a billion dollars increases the value of the stocks rather than decrease it, and nobody says or does anything about it?

[Fiscalprudence]

09:18 AM on 07/17/2010

Intelligenta....."Even a threat of litigation causes a company's stocks to take a hit; but, no, not GoldmanSachs."

Take a look where GS was trading before the SEC announced the investigation. It was trading 184.
Within one day it lost 25 points. In 2 weeks it was down 40.

Equities, GS included, price future expectations. With the settlement behind them, you would expect the market to rally. Especially if it was perceived to be less than expected or not as bad as the worst case scenario.

[Intelligentia]

09:02 AM on 07/17/2010

If anybody still does not believe that the whole stock market is rigged, this ie the proof that it is. How does a company settle a suit for half a billion dollars and its stock gains 4%? Even a threat of litigation causes a company's stocks to take a hit; but, no, not GoldmanSachs. America, you're finished! People can speculated that it might be because they expected to be put out of business; however, the half a billion was mere operational cost that does not have any impact whatsoever on the company. So, if that were to be the case, why was its stock not higher prior to the day of the settlement? Yet, after a loss of half a billion dollars increases the value of the stocks rather than decrease it and nobody says or does anything about it?

[redsongia]

12:56 PM on 07/17/2010

The stock gains because wall street investors react quickly on partial information.

Even the misplaced decision to buy leads others to react to the misplaced information. It has nothing to do with the fairness or inequity of the settlement itself.

[octaviosergio2]

02:15 AM on 07/17/2010

peanuts

[Turtleposer]

10:02 PM on 07/16/2010

Goldman Sachs probably created weird derivative funds based some sort of bet they made on the possible outcomes of the settlement.

[Intolerantcentrist]

09:47 PM on 07/16/2010

The cost of the global financial crisis is estimated at $11.9 trillion worldwide (http://www.financialexpress.com/news/total-cost-of-world-financial-crisis-at-11.9-trillion-imf/499983/). Goldman, Sachs & Co. will pay $550 million to settle SEC charges for actions that some see as substantially contributing to our financial debacle. Just to put Goldman’s settlement in perspective; didn’t Tiger Woods settle for considerably more in his divorce ($750 million)?

[Usama]

10:10 PM on 07/16/2010

God will not let such fraud and evil pass without judgement in the Hereafter.

(Translation of Quran)
26:181 "Give just measure, and cause no loss (to others by fraud)."

83:1 "Woe to those that deal in fraud,"

2:275 " Those who devour usury will not stand except as stand one whom the Evil one by his touch Hath driven to madness. That is because they say: "Trade is like usury," but Allah hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who repeat (The offence) are companions of the Fire: They will abide therein (for ever)."

4:161 " That they took usury, though they were forbidden; and that they devoured men's substance wrongfully;- we have prepared for those among them who reject faith a grievous punishment"

[Turtleposer]

11:44 PM on 07/16/2010

Many of us don't care about the hereafter - we care about here and now.

[Intolerantcentrist]

10:51 AM on 07/17/2010

Or as Jesus said to his disciples:

“How hard is it for them that trust in riches to enter into the kingdom of God!” Mark 10:24

“Again I tell you, it is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God." Mathew 19:24.

[luckyone77]

07:16 PM on 07/16/2010

article in Harper’s Magazine examines the role Goldman played in the food crisis of 2008 when the ranks of the world’s hungry increased by 250 million:

http://www.democracynow.org/2010/7/16/the_food_bubble_how_wall_street

[Dan Stewart]

06:29 PM on 07/16/2010

I wrote this on April 22, shortly after the GS suit was file.
____________

Don’t be fooled, the Goldman suit is a diversion.

That GS has ONLY been sued civilly and ONLY one low-level employee has been named indicates this case is a whitewash of massive fraud that hurt many investors, including pension funds, university endowments, municipalities and charities – as well as the U.S. economy itself.

The SEC’s tepid civil suit should have charged executives up the supervisory chain with aiding and abetting (by turning a blind eye), failure to diligently supervise, and control person liability. To say that a 31 year-old GS employee acted alone defies credulity. Paulson should have been named as well. Indeed, if what the SEC alleges is true, the Justice Dept. should have indicted GS and its top executives on multiple counts of fraud and conspiracy.

This case will wind up with GS entering into a no admissions (without admitting or denying the charges) settlement with fines and restitution of around $500 million (a pittance for GS). GS employee Tourre, the sacrificial lamb, will also settle with no admissions and several million in fines and restitution, and a lifetime bar from the securities business.

Meanwhile, the real perpetrators go unscathed, free to continue business as usual. Apparently, not only is GS too big to fail, they’re too big to indict.”

Permalink

[fitzag]

04:08 PM on 07/16/2010

STOP BANKING AND INVESTING WITH THESE BIG BANKS NOW.DO SOMETHING INSTEAD OF COMPLAINING.STAND TOGETHER PEOPLE OR DIVIDE WE FALL.

[Mafdet]

04:30 PM on 07/16/2010

I share your rage, but changing banks ain't going to change anything. The idea of moving from big banks to community banks would have had a big impact oin early 2009, when the big banks couldn't lend, but now there is again less advantage to banking with a small bank. First, they are all super conservative. You'll be more likely get a loan from the big banks. Second, the second wave of small bank failures is already in progress - 600-ish are at risk on top of the 500 that have already failed.

The Administration decided to let this happen. It is intentional and part of the economic policy that Henry Paulson crafted for Barak Obama in 2009.

[justmyopinion24]

05:58 PM on 07/16/2010

Yes but at most of these banks your money is federally insured up to $100,000. Further to that Credit Unions are a nice option as well. Also, each of our individual accounts matter zero for obtaining a loan from the banking giants. A removal of funds en masse is the only thing that will affect change. We have seen time and time again that we absolutely cannot rely on politicians to represent the people. The amount of politicians that were former executives at these banks and insurance companies and vice versa is staggering and telling. The government of this once great country has not been for or about the people for very long time. Of course that's just my opinion.

[nova07]

09:40 PM on 07/16/2010

Goldman Sachs doesn't take retail deposits. You're probably going to need $2-$3 million in liquid assets to be considered by there Private Client Services, and that is the minimum, most accounts are much larger. GS revenue is all principal trading, commission, and ibanking based, mostly on the institutional side. Moving your money to a credit union or community bank will not really affect them.

[Fiscalprudence]

08:17 AM on 07/17/2010

Actually...unless an employee, you need to have 25mm + to be considered for PCS (Private Client Services).

[fitzag]

04:06 PM on 07/16/2010

THEY SHOULD ALL BE IN JAIL PLUS THE FINE