Goldman Sachs and the SEC Take the Easy Road

by Jacob Zamansky on July 15th, 2010 at 4:58 pm : Comments 000

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.

To be sure, Goldman’s shareholders still have a strong case.  The evidence will show that Goldman’s CDO transactions and its failure to disclose the Wells Notice was a violation of securities law and through private litigation, I remain confident they will be held accountable

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