Goldman Sachs Ready to Settle SEC Fraud Case Soon to Save Reputation: Report

Thursday, 29 Apr 2010 07:38 AM

 

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Goldman Sachs may soon settle its fraud case with the U.S. regulator, the New York Post reported on Thursday, opting to end a legal fight rather than endure a repeat of the public flogging it received this week.

The Post report, citing sources familiar with the matter, said Wall Street's top investment bank was mulling closing the fraud case with the U.S. Securities and Exchange Commission (SEC) to limit damage to its reputation.

"It's almost a certainty that there will be a settlement," the paper quoted a source as saying.

Goldman could not immediately be reached for comment in London.

Goldman Chief Executive Lloyd Blankfein and other executives faced a blistering cross-examination from U.S. lawmakers about the company's ethics and behavior toward its clients on Tuesday.

The SEC has filed a civil fraud suit against Goldman, charging that it hid vital information from investors about a mortgage-related security.

The SEC also sued Goldman mortgage trader Fabrice Tourre, who's been accused of concealing Paulson's involvement when marketing the deal to investors. Goldman and Tourre have denied the charges.

As another person told the Post, the SEC has an "unlimited supply of ammunition" in the form of e-mails and records that it could release, and Goldman officials would like to avoid having those documents fired back at them the way they were on Tuesday.

Blankfein conceded in the final hours of a nearly 11-hour hearing that the criticism of his firm would lead to soul searching. He said "everything that's been the subject of criticism will be tightened up," an indication that the pressure on Wall Street may be starting to change behavior.

Blankfein, who was quoted late last year as saying he was "doing God's work," was asked time and time again whether it was morally correct for the bank to sell clients securities while at the same time the firm was betting against them.

"You shouldn't be selling junk. You shouldn't be selling crap. You shouldn't be betting against your own customer at the same time you're selling to them," said Senator Carl Levin.

"You're going short against the very security (you're selling) ... many of which are described as crap by your own sales force internally," said Levin, chairman of the Senate Permanent Subcommittee on Investigations.

"How do you expect to deserve the trust of your clients, and is there not an inherent conflict here?" asked the Michigan Democrat.

Blankfein was the last in a parade of Goldman Sachscurrent and former executives who tried to fend off accusations they helped inflate the housing bubble and then made billions off the market's collapse.

The hearing starkly illustrated the conflict between Washington and Wall Street over blame for the financial crisis, and resistance to some of the key financial reforms the Obama administration is trying to push through Congress.

The SEC's April 16 fraud suit centers on a subprime mortgage-linked product known as "Abacus 2007-AC1." The agency says Goldman failed to disclose that hedge fund Paulson & Co had input into its construction and was betting it would fail.

© 2014 Thomson/Reuters. All rights reserved.

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