Goldman Sux trying to settle before discovery on civil case can be used on criminal case?
http://www.foxbusiness.com/story/markets/goldman-settlement-talks-imminent/
By Charlie Gasparino
FOXBusiness
Talks to settle the fraud charges leveled against Goldman Sachs (GS) by the Securities and Exchange Commission over the sale of a batch of toxic debt to investors could begin as early as Tuesday, FOX Business has learned.
People familiar with the matter say attorneys for the embattled Wall Street firm plan to initiate settlement talks soon after the firm releases its response to the SEC’s charges, and FOX Business has learned that Goldman may unveil that response imminently, possibly Tuesday.
Goldman officials are leaning toward a sweeping defense of the firm's actions, rather than a motion to dismiss the civil charges filed by the SEC two weeks ago that alleged the firm failed to disclose material information to investors who bought mortgage-related bonds back in 2007, just as the housing crisis was to kick into full gear.
At issue: Whether Goldman should have told investors that short seller John Paulson was largely responsible for putting together the portfolio of debt, while he was betting against it.
According to sources, Goldman continues to believe strongly that the SEC’s case is without merit, but the firm also does not want to go to battle with regulators. "We can't be going to war with the SEC," said one senior executive at the firm.
Shares of Goldman have fluctuated wildly since the disclosure of the charges, and most recently news that the Justice Department has launched a criminal probe into the matter. On Monday, Goldman's stock surged after legendary investor Warren Buffett, who owns a stake in the firm, defended the company's actions and supported its embattled CEO Lloyd Blankfein. In addition, FOX Business has learned that the criminal probe is the result of an SEC referral of its case, and thus may be nothing more than a routine inquiry.
But with the threat of "headline" risk hampering shares of Goldman, and investor lawsuits and a possible criminal case dogging the firm, senior executives at Goldman are intent on putting the SEC case to bed, FOX Business has learned. From Goldman's standpoint, settlement talks, according to sources, would likely focus on regulators backing off serious civil securities fraud charges and instead would have Goldman paying a fine, and concede to lesser charges such as "negligence."
The pressure on Goldman to settle also stems from federal laws that ban pension funds from doing business with firms that have lost such cases. If there were a judgment against Goldman, the firm would have to shed large parts of its money-management business, a risk that legal experts say isn't worth taking no matter how weak Goldman believes the SEC's case.
But people close to the commission say the SEC may not be so willing to settle lightly, particularly in light of the fact the Department of Justice has launched its criminal probe. According to one attorney who regularly deals with the SEC, the commission could seek a fine of as much as $1 billion -- one of the largest on record against a major Wall Street firm -- and could demand the resignation of senior management, such as CEO Lloyd Blankfein and his No. 2, Gary Cohn, as bargaining chips.
Since taking over as CEO in 2006 after former CEO Hank Paulson became Treasury Secretary, Blankfein and Cohn -- both savvy traders -- have ramped up the firm's trading unit and achieved the highest profit margins on Wall Street. The Blankfein-led Goldman Sachs makes far more money trading bonds and other sophisticated securities than it does advising its clients on corporate finance matters, known as investment banking. But the shift away from the client business also came at a cost: Goldman was holding toxic debt on its balance sheet during the 2008 financial crisis, and like the rest of Wall Street needed a taxpayer bailout to survive. Meanwhile, as the SEC case demonstrates, the trading culture at Goldman has often put its interests above its clients.
Since the SEC suit was filed, Blankfein has said publicly that Goldman will re-examine how it deals with clients that it trades with, and he may have no choice: Sources who deal with the SEC on a regular basis say any settlement would have to include at least some structural changes, including enhanced disclosures to clients.
A spokesman for Goldman had no comment; an SEC spokesman didn't return a call.
