Goldman Settles With SEC Over Fraud Charges
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The Securities and Exchange Commission announced the massive settlement yesterday, and NPR's Jim Zarroli has our report.
JIM ZARROLI: SEC enforcement director Robert Khuzami said the settlement was a reminder of the importance of full disclosure and honest treatment of investors.
ROBERT KHUZAMI: And those principles do not change, regardless of how complex the product or how sophisticated the investor. For that reason, today's settlement sends a powerful message of deterrence and accountability.
ZARROLI: Lorin Reisner is the SEC's deputy director of enforcement.
LORIN REISNER: Undisclosed in the marketing materials was that the Paulson and Company Inc., hedge fund played a significant role in the portfolio selection and had an economic incentive to choose what it viewed as the poorest quality mortgage security.
ZARROLI: But Dan Strachman, author of the blog HedgeAnswers.com, says Goldman ultimately decided fighting the suit wasn't worth the trouble.
DAN STRACHMAN: This is clearly the cost- benefit analysis. I mean, the bean counters at Goldman Sachs decided that, at some point, it makes sense to just pay the government off, and this number is the number that makes the most sense to them.
ZARROLI: That number ended up being $550 million dollars. A little more than half will go to the U.S. Treasury. The rest will go to investors hurt by the deal. The money represents just a fraction of the $13 billion dollars that Goldman earned last year, so it's hardly going to break the firm, and Goldman was not required to make any management changes. Still, for a company that rarely stumbles, the settlement is a black eye.
JAY BROWN: I think this is a big victory for the SEC. I just don't think there's any other way to look at it.
ZARROLI: Jay Brown of the University of Denver Law School says the SEC had a tough case to prove, and Goldman had the resources to fight in court for a long time, so the fact that Goldman decided to settle is a break for the government. And though the settlement has to be approved by a judge, it most likely will be.
BROWN: The combination of the amount of money, half of which will be essentially returned to investors, and also the litigation risk involved, I think this will be approved.
ZARROLI: Jim Zarroli, NPR News.
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