Goldman To Pay $550M To Settle SEC Charges
MICHELE NORRIS, host:
Wall Street giant Goldman Sachs has agreed to pay $550 million to settle charges that it misled investors. The Securities and Exchange Commission says this is the biggest penalty it's ever levied on a financial firm.
And NPR's Tamara Keith joins us now.
Tamara, what exactly is Goldman admitting to?
TAMARA KEITH: Well, it's not admitting to fraud. That's what the SEC had charged earlier this year. But the company did admit that it made a mistake in its marketing materials for a mortgage-related product known as Abacus. And this is the now infamous investment where Goldman teamed up with a hedge fund manager, and then let him suggest what kind of mortgages would go into the investment.
But the hedge fund manager named John Paulson - no relation to the Treasury secretary - he wasn't planning to invest. He was betting they would fail, and the problem was that Goldman didn't tell the investors in Abacus that Paulson was involved.
NORRIS: Now, $550 million seems like an awful lot of money, but is it a lot of money for a firm like Goldman Sachs?
KEITH: No. I mean, in the first quarter of this year, Goldman Sachs says it earned about $3.5 billion, so $500 million is a ton of money for the rest of us, and certainly Goldman would like to not have to pay that, but this is something that they're not going to have to strain to come up with.
And also from Goldman's perspective, there's a lot to be said for just making this go away, making the uncertainty go away. But the SEC also points out that Goldman isn't just paying a fine, it's also changing its business practices. So they say that the firm is conducting a comprehensive review of its business standards, and it's also promising to do a better job of training its employees.
NORRIS: Tamara, I want to go back to what the company actually admitted here. The SEC in its press release says that the firm is settling without admitting or denying the allegations, but they did, it seems, acknowledge some sort of at least a mistake.
KEITH: Right. And this no admitting or denying thing is pretty common in SEC settlements. But both sides here seem to have worked pretty hard on the language of this. So they both have something to hold up either to the public or to their shareholders and say: See, we got what we wanted.
But instead of talking about fraud, they're talking about negligence or mistaken and incomplete information. One thing that's also important here is that this settlement still has to go to a judge, a federal judge, for approval, and that's not a sure thing.
There was a case last year that the SEC had with Bank of America, and they took it to a judge and the judge said: Why don't you try again on that?
NORRIS: So I take this means that Goldman's troubles are not over?
KEITH: Well, they're not exactly over. In addition to the settlement being approved by a judge, there's also an outstanding Justice Department investigation into the same issues.
Those types of investigations are routine. They often do investigations at the same time as the SEC. And we don't know if charges there will ultimately be filed or not.
NORRIS: $550 million, is that a one-time payment? And where does that all money go?
KEITH: One-time payment. $250 million goes to injured investors, so folks who invested in Abacus who didn't realize that it was designed to fail. And then $300 million goes to the U.S. Treasury.
NORRIS: Thank you very much, Tamara.
KEITH: Thank you.
NORRIS: That's NPR's Tamara Keith.
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