Goldman makes out nicely in settlement

The company will pay $550 million to sweep serious SEC charges under the rug.

By Kim Peterson Jul 15, 2010 5:11PM
Updated July 16, 1 p.m. EST

Who came out the winner after Goldman Sachs (GS) settled charges with the Securities and Exchange Commission?

Let's see. In after-hours trading, Goldman shares jumped by 8%, and that was on top of a 4% increase Thursday as rumors of a settlement raced around the markets.

Investors continued to applaud Friday. Shares were up $3 and change, which means the company is worth $1.5 billion more than it was before the settlement. Not bad for a $550 million investment; no wonder they say Goldman always wins.

The SEC confirmed late Thursday that Goldman will pay $550 million and "reform its business practices" to make this ugly matter go away. The SEC crowed that the payment was the largest-ever penalty paid by a Wall Street firm.

You'll see no crowing by Goldman Sachs. At least, not in public.
But this is probably one of the best outcomes a Goldman shareholder could hope for. The SEC charges were embarrassing and could have done serious damage to the way the Wall Street firm conducted business. Post continues after video:
The case centered around a portfolio of junk securities backed by truly toxic residential mortgages. This portfolio, called Abacus, was a real stinker, and intentionally so. The whole thing was created just so Goldman and its top clients could make a big bet against the housing market.

"Those deals initially protected Goldman from losses when the mortgage market disintegrated and later yielded profits for the bank," reports The New York Times.

Investors in Abacus weren't so lucky, collectively losing $1 billion. But hedge fund manager John Paulson, who picked some of the junk securities that went into Abacus, profited handsomely from the deal. Goldman didn't tell investors that Paulson was in on the whole thing.

(Paulson, by the way, just bought an amazing mansion in Aspen, with seven bedrooms and 8.5 baths on nine acres.)
Observers are clearly marking this settlement into the win category for Goldman.

"I’m just surprised that [the SEC] didn’t even get any management changes, or any kind of mea culpa," writes Felix Salmon. "The risk, of course, is that Goldman’s victory here will only serve to exacerbate its arrogance."

Business Insider calls the $550 million settlement "chump change," especially since Goldman won't have to admit to any wrongdoing.

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