Goldman Hustles Regulators To Settlement

http://bit.ly/7XwAG

Within hours of passing of the watered down financial reforms bill in the Senate, the Wall Street forced yet another spectacular compromise. The SEC was made to settle with Goldman Sachs in the high profile Abacus civil fraud case where Goldman had been accused of duping 2 European Banks to invest in mortgages that the hedge fund Paulson & Co had helped devise, and then betted against. In our 22nd May blog post we had intimated to you that a $500 million fine on Goldman was the compromise solution that had been proposed by the Wall Street with no admission of guilt, and this was likely to be accepted by the regulators.

It is rumored that both these settlements were politically motivated compromises that released the freeze on contributions by Wall Street Banks to the Democratic party. Banks and financial companies had reduced donations to the Democratic party to a trickle since January and it was begining to hurt before the November elections. Rolling Stone reported that Wall Street had unleashed 2000 political activists to lobby on its behalf to water down the Banking reform bill as well as close the SEC case against Goldman with a nominal fine and no indictment.



As expected the lobbyists and the money squeeze did its work. Goldman Sachs had its way in the Abacus case and forced the regulator SEC to accept a settlement that neither compensated for the loss of the two banks duped by Goldman, nor made Goldman plead guilty to the charges framed by SEC.

At the heart of the settlement there were three principal issues. Wether Goldman would plead guilty of providing mis-information to its clients including ABN Amro and IKB Bank. Goldman managed to avoid unilateral admission of guilt as per SEC charges and coined its own apology.

The Wall Street Banker simply got away by stating that the mortgages within the CDO had been selected by a third party, without mentioning the role of Paulson & Co, a hedge fund that bet against the security and said that it was a mistake not to have informed the buyers of the same.

It also succeeded in persuading regulators to move the settlement away from civil fraud accusations and re-word the same as a admission that the marketing materials for the collateralised debt obligation “contained incomplete information”.

The third decisive victory for Goldman was that it got away with a $550 million fine which was half the amount that investors ABN Amro and IKB Bank lost on the Abacus deal. Whereas the German Bank IKB Ltd lost $150 million and was fully compensated due to pressure and action by the German Government on speculators, ABN Amro which had lost $841 million and had gone bankrupt before it was taken over by RBS and the Netherlands Government was compensated only $ 100 million.

The news was recieved by Wall Street with euphoria and Goldman shares shot up by 4.4% to cross $150 mark in the mid morning trading session. However not all were pleased.
Miffed at the paltry $100 million settlement offered to it RBS the current owners of ABN Amro has threatened to sue Goldman Sachs to recover its full losses of $841 million. If that happens the EU courts could tear apart Goldman's manipulated settlement with SEC and cause further loss of both money and reputation for the Wall Street Bank.