Goldman Sachs $550 Million Settlement a 'Stark Lesson' for Wall Street

Article excerpt

Goldman Sachs settled its SEC suit for a record amount Thursday. The settlement may be just the beginning of a broader SEC campaign against alleged Wall Street abuses.

Goldman Sachs agreed to settle a lawsuit filed by the Securities and Exchange Commission for $550 million, a record amount in the history of SEC cases against financial firms.

The agency alleged that Goldman failed to disclose key information about an investment product that had been designed with input from a client with a "short" position - a bet that the investment would go down in value.

By settling the case, Goldman lifts a cloud of uncertainty that had hung over the investment bank since April. Its share price rose sharply as news of the settlement emerged Thursday.

But the broader meaning may not be so reassuring for Wall Street. The SEC won a lot money, plus other concessions, from the largest and most powerful investment bank in a case that some securities experts thought was weak. In the process, Goldman saw its image tarnished by negative press reports and a congressional inquiry into the firm's behavior toward clients.

Most important, the case is just the opening salvo in what the SEC intends to be a broader campaign against alleged abuses on Wall Street. The settlement may help Goldman by showing some conciliation to regulatory authorities, but it doesn't mean the firm or others on Wall Street won't face further lawsuits in coming months.

At the very least, the case is helping to usher in an era when Wall Street firms will be more zealous to see that their staffs are schooled in legal and media-relations issues as well as the art of dealmaking. "This settlement is a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing," said Robert Khuzami, director of the SEC's enforcement division, in a statement as the news was announced. …