Zamansky: Goldman Sachs and the SEC Take the Easy Road

The SEC deserved a lot of credit for filing the case against Goldman Sachs for its dubious creation of the ABACUS CDO transaction.  To recall, Goldman created the ABACUS deal so that a hedge fund manager could short the mortgage market, and then sold the securities to an unsuspecting client without disclosing the investment was built to fail.

But while the SEC deserves plaudits for filing a challenging case, settling the case without requiring Goldman to address whether fraud was committed misses the point entirely.  Moreover, this allows Goldman Sachs to avoid turning over potentially incriminating documents about the ABACUS deal, other CDO transactions and the failure by Goldman to disclose the Wells Notice it received after the SEC initially launched its investigation.  Having filed a  shareholder class action case against Goldman Sachs, it was a slight disappointment to see Goldman pay a fine rather than be truly held accountable for its actions.  Speaking of which, while the fine appears to be substantial, its a drop in the bucket for Goldman Sachs, and the “admission” of a mistake was crafted by Goldman lawyers to be later able to deny liability.

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Goldman, Not Yet Officially Served by SEC on Fraud Charges, Ramps Up Settlement Talks

Attorneys for Goldman Sachs (GS: 142.77, -0.618, -0.43%) have ramped up efforts to settle civil fraud charges over whether the firm misled investors who bought a package of toxic mortgage debt from the big Wall Street firm after the Securities and Exchange Commission decided not to officially “serve” Goldman the complaint, a move some legal experts say could show a willingness by the SEC to settle the case as well, FOX Business has learned.

By not officially serving Goldman, the SEC has given the firm an additional 60 days (instead of 30) to file either a motion to dismiss or answer the complaint with its defense of the charges. Those charges allege that the firm committed securities fraud by not alerting investors who purchased a pool of collateralized debt obligations during the early stages of the financial crisis that a prominent short seller had both helped create the CDO, and then bet against it.

That additional time, some legal experts say, will allow both sides to work out a settlement.
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Goldman Sachs, SEC Said to Be In Settlement Talks

Goldman Sachs has apparently entered settlement talks with the Securities and Exchange Commission (SEC) to settle civil fraud charges the agency levied against the investment bank last month. According to a Wall Street Journal report, the talks didn’t include any specific settlement terms, such as the amount of a fine or agreements Goldman could make with the agency. What’s more, the two side remain far apart.

In April, the SEC filed a civil suit against Goldman Sachs, as well as Vice President Fabrice Tourre, over a financial product called Abacus 2007-AC1. As we reported previously, Abacus was a collateralized debt obligation linked to the performance of subprime mortgages that the SEC says was designed to lose money. Investors in Abacus were never informed that a hedge-fund firm helped to pick some of its underlying mortgage securities and was betting on the financial instrument’s decline, the SEC said.

In addition, the Justice Department is also said to be looking into Goldman Sach’s mortgage deals, raising fears of a potential criminal charges.

According to The Wall Street Journal, since the SEC charges were filed, Goldman Sach’s shares have fallen 23 percent, wiping out $20 billion in shareholder value.

While the investment bank initially took a combative stance with the SEC, the Journal said Goldman Sach’s lawyers have concluded that the company needs to make a serious effort to resolve the SEC lawsuit. Unnamed sources reported to the Journal that the firm’s Chief Financial Officer David Viniar and Vice Chairman J. Michael Evans told some large shareholders that Goldman “would be happy to settle today.”

News of the SEC-Goldman Sach’s talks came the same day as the firm held its annual shareholder meeting in Manhattan. According to the Journal, its Chief Operating Officer, Gary Cohn, declined to comment about the reported talks during the meeting, but told reporters that “something has to happen in the case.”

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Feds open criminal probe of Goldman

Stepping up the pressure on Goldman Sachs two days after its executives were grilled and publicly rebuked by lawmakers, the Justice Department has opened a criminal investigation of the Wall Street powerhouse over mortgage securities deals it arranged.

The criminal inquiry follows civil fraud charges filed by the government against Goldman two weeks ago and as Congress pushes toward enacting sweeping legislation aimed at preventing another near-meltdown of the financial system.

The investigation by the U.S. attorney’s office in Manhattan stems from a criminal referral by the Securities and Exchange Commission, a knowledgeable person said Thursday. The person spoke on condition of anonymity because the inquiry is in a preliminary phase.

The SEC brought civil fraud charges against Goldman and a trader in connection with the transactions in 2006 and 2007. The agency alleged the firm misled investors by failing to tell them the subprime mortgage securities had been chosen with help from a Goldman hedge fund client, Paulson & Co., that was betting the investments would fail. Goldman and the trader, Fabrice Tourre, have denied wrongdoing and said they will contest the allegations in court.

Word of the Justice Department action came a day after a group of 62 House lawmakers, including Judiciary Committee Chairman John Conyers, D-Mich., asked Justice to conduct a criminal probe of Goldman. “On the face of the SEC filing, criminal fraud on a historic scale seems to have occurred in this instance,” the lawmakers, mostly Democrats, said in a letter to Attorney General Eric Holder.

SEC spokesman John Nester declined any comment on the matter, as did Yusill Scribner, a spokeswoman for the U.S. attorney’s office in Manhattan.

Goldman spokesman Lucas van Praag said, “Given the recent focus on the firm, we’re not surprised by the report of an inquiry. We would cooperate fully with any request for information.”

The Justice Department move was the latest in a dramatic series of turns in the Goldman saga, which has pitted the culture of Wall Street against angry lawmakers in an election year, in the wake of the financial crisis that plunged the country into the most severe recession since the Great Depression of the 1930s.

At the Capitol Thursday, following days of failed test votes, the Senate lurched into action on sweeping legislation backed by the Obama administration that would clamp down on Wall Street and the sort of high-risk investments that nearly brought down the economy in 2008.

And two days earlier, a daylong showdown before a Senate investigative panel put Goldman’s defense of its conduct in the run-up to the financial crisis on display before indignant lawmakers and a national audience. The panel, which investigated Goldman’s activities for 18 months, alleges that the Wall Street powerhouse bet against its clients - and the housing market - by taking short positions on mortgage securities and failed to tell investors that the securities it was selling were at very high risk of default.

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