Why strong financial reform was so important
Remember when the Securities and Exchange Commission bringing a suit against Goldman Sachs was big news? Goldman is the darling of Washington financiers and the idea that the SEC could sue them over, of all accusations, fraud, was a lightning rod of news in the lead up to financial reform just four months ago.
Yours truly made the resplendent comment that the move signalled there were, “no sacred cows, anymore.” Those were exciting heady days before things with financial reform had really started to unfold. So what has happened with Goldman and the SEC since then?
Goldman, Sachs & Co., the broker-dealer, has agreed to a settlement with the U.S. Securities and Exchange Commission to resolve the SEC’s pending case against the firm relating to disclosures in the ABACUS 2007-AC1 CDO offering. The settlement is subject to the approval of the United States Court for the Southern District of New York.
The firm entered into the settlement without admitting or denying the SEC’s allegations. As part of the settlement, however, we acknowledged “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.”
We believe that this settlement is the right outcome for our firm, our shareholders and our clients.
To cut to the chase: in order to not have to publicly admit that they committed fraud, Goldman Sachs paid $550 million to settle a case with the SEC over… committing fraud. For all the fanfare and speculation over the announcement of the SEC’s case against Goldman, the settlement, which was announced on July 15, barely warranted a blip in the news cycle. Goldman Sachs did not deny fraudulent behavior costing their own customers approximately $3.7 billion and it basically went by unnoticed in most news circles.
That is a startling fact and it helps to demonstrate why overhauling the American financial sector was so important. When a $550 million settlement over a fraud case involving the country’s previously most reputable investment bank — a bank that initially called the suit, “completely unfounded in law and fact” — goes by basically unnoticed, you know that there are serious structural problems with how finance in the country conducts its business.