The timing of the Goldman Sachs settlement has raised eyebrows coming almost simultaneously to the passage of the Financial Regulations Bill and despite the fervent denials by Robert Khuzami, the SEC's enforcement chief. The suspicion remains that the settlement was, if not politically motivated, at the very least politically timed. The answer? I don't know.
Today the Wall Street Journal reported that the "SEC Split Over Goldman Deal" voting 3-2 according to party lines to settle the lawsuit. At issue was whether the decision to abandon the strongest fraud charge was justified.
The size of the fine? Well that, as everyone now knows is $550 million, trumpeted as the largest fine ever levied by the SEC. This on a transaction (the now notorious Abacus 2007-AC1 CDO) that cost two hapless European banks some $1 billion and for which they will receive a total of $250 million out of Goldman's $550 settlement with the SEC. This on a transaction on which the Royal Bank of Scotland (now 83% owned by the British Government) lost $841 million, along with part of the settlement funds going to Germany's IKB Bank that according to Reuter's quoted Merck Finck analyst Konrad Becker provides "little consolation, if any, given that overall losses were much higher for IKB."
The language of the settlement will probably make it more difficult for the two European banks impacted in this instance to achieve full restitution from Goldman in that the settlement's language averts allegations or usage in the legal sense of the term "misconduct." It will likewise weigh on additional litigation in process that focus on other allegedly dubious financial instruments as in the Australian "Timberwolf" proceeding.
Also noteworthy, according to the Wall Street Journal article, investors had been anticipating a fine of $1 billion or more. The fine actually levied at $550 represents but 2.4% of the $23 billion Goldman set aside for its 2009 bonus pool. Additionally, on Wednesday/Thursday as rumors of the settlement hit the market and was then announced, the stock climbed by some $13 a share, or some $7 billion in value.
Clearly the settlement is a major plus for Goldman. The rush to settlement was instigated, according to the Wall Street Journal article, because the SEC had gotten wind of the fact that the WSJ was preparing an article on the "catch all settlement talks." Really? Perhaps.
But perhaps another tidbit might well be considered. Earlier this week President Obama met with Warren Buffett at the White House. Buffett's Berkshire Hathaway Inc. had invested $5 billion in Goldman Sachs. According to the New York Times report on July 14th "the meeting covered everything under the economic sky". Were the gathering storm clouds of the Goldman litigation part of the vista in view as well?