ROBERT SIEGEL, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

MELISSA BLOCK, host:

And I'm Melissa Block.

Today, Goldman Sachs reminded everyone why it's one of the biggest names on Wall Street. The firm released its first quarter earnings this morning and the numbers show that Goldman netted nearly $3.5 billion. The earnings report comes just days after the Securities and Exchange Commission sued Goldman for fraud.

NPR's Tamara Keith reports.

TAMARA KEITH: Goldman Sachs is a polarizing force on Wall Street. Depending on who you ask, it's a firm of geniuses, or maybe evil geniuses. No matter, Goldman has been wildly successful. It took plenty of risks and emerged from the financial crisis stronger than ever. And now the firm is striking back against the SEC's charges.

Mr. GREG PALM (General Counsel, Goldman Sachs): We would never intentionally mislead anyone, certainly not our clients or counterparties.

KEITH: That's Greg Palm, Goldman's general counsel on a conference call this morning, where the firm announced its earnings and laid out its position on the SEC lawsuit.

Mr. PALM: We have never condoned and would never condone inappropriate behavior by any of our people. On the contrary, we would be the first to condemn it and take all appropriate action.

KEITH: From here, Goldman's defense gets quite technical, because it turns out the case is quite technical. It's centered on an investment vehicle named ABACUS 2007 AC-1. ABACUS was a wager on the fate of a portfolio of mortgage-backed securities. One side bet it would do well, the other side bet it would crash and burn.

Christopher Whalen is managing director of Institutional Risk Analytics.

Mr. CHRISTOPHER WHALEN (Managing Director, Institution Risk Analytics): Goldman created the ability for one client to profit and they created the opportunity for another client to lose or a group of clients to lose a billion dollars.

KEITH: But so far, none of this is illegal or even out of the ordinary. All of the big investment banks were setting up deals like ABACUS back in 2006 and 2007. This one was created at the request of a hedge fund manager named John Paulson. He's not related to the Treasury secretary.

Paulson's firm helped pick the mortgage securities that went into ABACUS and then bet that they'd fail. The SEC says Goldman Sachs should've told the other investors about Paulson's involvement. Goldman says the other investors -sophisticated financial firms - knew everything they needed to know and also made suggestions about which securities should be included.

Securities lawyer John Singer says the SEC has to prove a very specific point.

Mr. JOHN SINGER (Securities Lawyer): If this were a matter of what's ethical or moral, certainly Goldman has the harder case. But legally, there's a lot of impediments to the SEC's case here, and there's a lot of tools for the defense.

KEITH: He says the legal question is whether Paulson's involvement was material - whether any of the investors would've acted differently if they knew about Paulson's role.

Mr. SINGER: There was such a raging bull market for these particular products that I don't think anybody at that time would've cared about really anything other than that they wanted to get their hands on more of this product. And that's what I think the SEC's biggest hurdle is going to be to prove, materiality.

KEITH: But for Goldman, it's not just about the legal case. Columbia Law professor John Coffee says it's also about what the firm's clients think.

Professor JOHN COFFEE (Law, Columbia University): Goldman Sachs lives on its reputation. It exists in a very competitive industry, and the other banks in this field will quite politely stick their knives in the back of Goldman when they talk to the European banks that they would like to steal away from Goldman.

KEITH: University of Denver law professor J. Brown isn't all that worried about the firm.

Professor J. BROWN (Law, University of Denver): Anybody who uses Goldman, knowing how good Goldman is, I don't think they're going to walk because there was one deal where it was alleged that they didn't tell the whole story to the investors.

KEITH: And with earnings like those Goldman reported today, the firm is already reminding its clients why it's at the top.

Tamara Keith, NPR News, Washington.

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