Money Matters - Simplified

Goldman strikes gold with $550mn SEC settlement

As the company announced Thursday that it has reached $550 million with SEC to settle claims related to its “ABACUS 2007-AC1 CDO offering,” Goldman shares surged almost 4.4 percent to close at $145.22 on Thursday and opened at $152 on Friday.

Goldman Sachs does not seem to have lost anything after paying $550 million fine to the Securities and Exchange Commission (SEC) to settle the civil fraud case against it. In fact, the settlement with SEC has come as a big win for the New York based global investment banking and securities firm.

Not only has Goldman put an end to the episode that had threatened its reputation, it has reached settlement without admitting or denying SEC's allegations.

SEC's allegations
In a case filed in April this year, SEC had alleged that the investment banking firm had defrauded investors by misstating and omitting facts related to the "ABACUS 2007-AC1 CDO offering."

Also, the federal agency claimed that Goldman not only kept secret the role of hedge fund, Paulson & Co. in the portfolio selection but also allowed it to secretly design the mortgage securities to cash on the housing slump.

Goldman regrets incomplete information
Though Goldman did not admit to any wrongdoing, it however acknowledged that the marketing materials for mortgage securities did not contain all the 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,” stated Goldman.

Goldman's shares surge
The investment firm has no doubt acknowledged the mistake of not disclosing all the information, and will pay a hefty fine, biggest penalty paid by any Wall Street firm, but it did not take a plunge in the financial markets.

In fact, the company's move has received approval from the stock markets.

Not only has Goldman put an end to the episode that had threatened its reputation, it has reached settlement without admitting or denying SEC's allegations.

As the company announced Thursday that it has reached $550 million with SEC to settle claims related to its “ABACUS 2007-AC1 CDO offering,” Goldman shares surged almost 4.4 percent to close at $145.22 on Thursday and opened at $152 on Friday.

One of the reasons could be that the amount to be paid as fine is paltry amount compared to $1 billion anticipated by the analysts.

Based on company's earning report last year, $550 million fine totals to profit earned in 15 days by Goldman.