Goldman Sachs Group Inc. lawyers met this week with representatives of the Securities and Exchange Commission in a first step toward a potential settlement of the agency’s fraud lawsuit against the securities firm.
The two sides remain far apart. The preliminary settlement talks, held Tuesday, between Goldman co-general counsel Gregory Palm and other lawyers representing the New York company and SEC officials didn’t include any specific settlement terms, such as the amount of a fine or agreements Goldman could make with the agency, people familiar with the situation said.
Wait a minute! I thought these guys were the baddest of the bad. They eat what they kill! Why on earth would the settle? Fight on! Wolverines.
Any settlement missing an admission of guilt is not good enough for me.
If there’s an admission of guilt, it’s not a settlement — it’s a plea bargain.
Don’t get me wrong, I think GS should pay up the wazoo. But there won’t be any admission of guilt unless the settlement talks fall through and the SEC proceeds to prosecution.
In order to plea, you have to state that you are guilty.
GS is guilty by the fact that they are settling instead of going to court. In the court of public opinion, that is.
Rev. Horton Heat reference FTW.
Since we’re all amateur lawyers here, I just want to point out that this is a civil case, so all Goldman could ever do was pay money, right? (I’m sure that’s not right, but perhaps someone can explain why.)
Though I agree with John that those fuckers need to grovel a bit in whatever settlement agreement gets made.
If we see Goldman pay out a big enough fine and suffer heavy enough sanctions, I’ll consider that admission of guilt enough. But I was really hoping to see this go through the court system. Watching “Goldman on Trial” for a month or two would be worth more to me than any backhanded apology they might eventually release.
I don’t think any settlement is good enough.
I think this stuff needs the fullest exposure to daylight and that is more likely from seeing it through.
The public needs the teaching that would result.
skating like skates skating on skates in a skating rink.
@mistermix: Didn’t I hear something about a suit with the Justice Department? That wouldn’t be a civil case.
There won’t be an admission of guilt. That’s like the cornerstone of these settlements. They just get to pay off the SEC ‘without admitting any wrongdoing.’
This is the best post I’ve read on it. It’s a civil case, but I don’t know exactly how that works.
@mistermix: I think there’s a criminal case being filed in the New York courts. But yeah, the SEC can only file civil proceedings.
Don’t you mean the Fabbest of the Fab?
Probably will go the way of Siemens. They paid a $350M fine to SEC and $450M to DOJ to settle civil and criminal charges without admitting guilt.
GS should be good for a $B. Admin and SEC get to trumpet largest fine ever, GS gets the nuisance out of the way using their coffee money. Win/win.
Well, maybe GS traders might have to go with less biscotti along with their espressos so there would be suffering and belt tightening. It’s tough times.
@Tsulagi: No longer “all you can eat” at the biscotti bar?
The whole idea of a plea deal is to agree on what is being plead guilty to. A defendant has nothing to gain in the process other than getting the crime plead down to something cheaper and easier to deal with. So it makes sense for GS to plead the thing down, and it probably makes sense for the SEC to save themselves the cost and trouble of proving a difficult case on a more aggressive charge.
I don’t think they at GS give a rat’s ass about the court of public opinion, and if I were them, I wouldn’t either. Not that I think they don’t deserve whatever they get, it’s just that the court of public opinion is a pretty fucked up mob rule situation right now. The mob is ready to lynch anything that moves, including good guys, just because they are pissed off. Dickens would need to rewrite his opening for this story … these are the worst of times. Period.
The real villains in this piece are the emasculators of regulation and enforcement that struck long before this crime was committed.
berry ritholz (big picture) who is a trader and a lawyer is pretty sure goldmen either looses or settles and has put money up to that effect.
how much? well, for this time prolly alot, but i think the SEC is hoping they fight it and go into discovery. Then it’s free fishing expedition for the criminal investigation underway.
also, it’s a civil case, you don’t have to admit anything to settle, both sides just come to ‘what’s fair’
@Kennedy: Agreed. There never is an admission of guilt.
I’m sure that when and if a settlement is reached, there will be a round of billion dollars’ worth of bonuses flying around.
I don’t know anything about the statutes at issue in this case, but, as a general rule, in civil cases courts have the power to award damages (i.e., payment of money) and grant equitable relief. Equitable relief, basically, means an injunction–an order to stop doing something.
It’s a civil case, and these things always start out with settlement talks. SEC cases are always multi-step endeavours that generally span years. Companies (and individuals) are given multiple chances to try to convince the government not to sue them. The government likes settlements because it saves them the cost of going to trial, which frees them up to go after the next bad guy.
What’s interesting about this case, though, is that usually settlements are more or less finalized BEFORE the complaint is filed. Historically the SEC has worked with companies to file the complaint and the settlement simultaenously so that everything can get wrapped up in one fell swoop. The fact that this did not happen here really does suggest that the SEC thinks it can actually win this case (or at least that refusing to settle early in the process is worth enough political capital to outweigh the transaction costs of moving forward with the suit).
“Equitable relief, basically, means an injunction—an order to stop doing something. ”
In securities law the injunctions are essentially “we order you to stop doing illegal things.” Which….not so helpful.
Individuals can be barred from trading related activity, but there’s really not a whole lot that the court can order Goldman to do except pony up some big bucks.
i wouldn’t care if they don’t pay a dime, as long as they promise in exchange for no further action on the suit, to not stand in the way of efforts to regulate the whole shebang. they don’t even have to throw their weight in for regulating derivatives, or separating investment banking from trading and insurance, just stay on the sidelines….
Whoops, other posters are right, this is not a criminal case, so that whole plea discussion is moot.
Dickens will resubmit his copy on the story.
Admission of guilt? Prosecution,confiscation and execution is the only just remedy for these scum anything less is an insult.
Yup. There will be no admission of guilt because that would be the whole ball game right there in the hundreds of billions of dollars of civil lawsuits they would face almost immediately.
Makes sense to me. I suspected as much, but decided I would stick to what I knew rather than what I thought was probably true.
@IndieTarheel: Goddammit! I was feeling all proud of myself for digging up that video before I even clicked on the comments, and here you are putting up the link at #3!
Young girls and gin may be the cure,
Young girls and gin may be the cure
I’m talking ’bout as good as you stay pure,
Young girls and gin may be the cure
@Zifnab: Why is the SEC only civil? I’ve never seen an explanation of that, and I admit to being stumped as to why a regulatory agency wouldn’t have bigger fangs.
I’d be happy if the fine is eqaul to say, the bonus paid to the top 50 GS execs over the last two years. That ought to come close to put a dent in the defict.
I get what you mean, but the opinion of GS is very important. It plays out in Europe as well as here.
I think they are in for rough sledding.
The market gets jittery at a sneeze.
The Manhattan DA is looking at GS.
I am unsure if the SEC did a referral to DOJ.
@slag: Or the fronest of the frone?
@oklahomo: I honestly have no clue. Given that the SEC barely exercises the authority it does have, I’m not sure why they need bigger fangs when they never bite.
That said, we’ve already got a DoJ and 50 state justice departments. At a certain point, it would be redundant. The SEC is a watch dog and regulatory organization, not a police outfit. They CAN reference a complaint to state or federal investigators, and that can – in turn – evolve into criminal charges. I’m not sure if giving the SEC the power to bring criminal charges would really improve anything past that. It’s not like no one else can press charges if the SEC can’t.
@oklahomo: Outright fraud is still a crime. Beyond that, I’m generally in favor of not criminalizing every regulatory violation unless there’s a real good reason.
I mention this because one of my pet peeves in this matter is anti-immigration activists screaming, “But these immigrants are ILLEGAL! They’re CRIMINALS! Lock ’em up!” No, they’re not committing crimes*. They’re violating immigration law, not criminal law. Anyone that thinks that’s a mere technicality can try getting the cops to enforce a business contract.** See how far you get.
*Except, of course, in Arizona now.
**Speaking from my own, ignorant, experience.
Kabuki theater. Sorry to advance the conspiracy theory, but it is so obvious what is going on. First, when the SEC announced the charges, they released all of the details and accusations. Please find me another case in which the SEC operates this way. SOP for them is to be on the downlow and not all this grandstanding.
Second, what timing! FinReg coming down the pike – file charges. Election coming in November – settle out of court for $1 billion in October! Largest settlement with financial industry in history! Book it, they will settle in October.
This is all orchestrated. Kabuki theater.
@Zifnab: That makes sense. I admit to being a newbie to a lot of this crap, and if it weren’t for this blog and calculated risk I’d be totally lost.
coke, or hookers, but not both. tough times.
BTW, on “eat what they kill,” I think this comment deserved to be front-paged. But as a dog owner, I understand why it might be too disturbing.
I think you hit it in your second paragraph. Evidence of criminal wrongdoing is turned over to the DoJ for criminal prosecution.
@Citizen_X: Yes, I can dig that. And even if they had more of a bite, I’m sure they’d have been made completely toothless during the Bush years.
Then the resolution of this case is unlikely to be good enough for you. Defendants in SEC civil cases that settle typically enter into consent decrees. The consent decree, when translated into English, basically says “we don’t admit that we did anything wrong, but in the interest of making this case go away we agree to never do those non-wrong things again. And here’s a bunch of money for your trouble.”
@Maude: “In order to plea, you have to state that you are guilty.
GS is guilty by the fact that they are settling instead of going to court. In the court of public opinion, that is. ”
IIRC this is a civil case, so that’s not correct (IANAL).
Also, if you have billions and billions (and billions and…) of dollars, you get, um, ‘arrangements’ not open to people who actually have to live under the law.
“wolverines!” is the most approriate war-cry for giant weasels.
let the SEC collect some damages — as long as the DOJ investigation continues….
There are hundreds or thousands of individuals, pension funds, and investment companies who were defrauded in these deals. If GS admitted liability or was found to be liable, these potential plaintiffs could piggy-back on that admission of liability. GS’s wrong-doing would be established – they would only have to prove their damages. It would make their claims against GS much, much easier to prove. By settling with the SEC without admitting liability, GS can continue to argue that it did nothing wrong in the private lawsuits. This is a big incentive to settle with the SEC.
They’re settling because it’s not worth it to fight all the way and win when the PR is destroying your firm.
If they took it to the top I expect they’d win. The SEC called their bluff, and outsmarted them. It’s time they settle and move on.
@IndieTarheel: Awesome. Or the firmest of the firm, depending on who you ask.
Rumor on the street is $1-2 billion if Blankfein steps down, $5 billion if he doesn’t.
Comrade E.B. Misfit
Any settlement that does not involve some public beheadings is not enough for me.
Apprentice to Darth Holden
To echo Comrade Misfit, I’m hoping for public delobings of Ferengi parasites, but that’s way too much to hope for. Heck, mild admonishment is probably waaaay to harsh for these “good boys” who went astray for only, I’m sure, a few moments.
Any settlement that does not include a stake through their heart (and that of all the other megabanks) is unacceptable.
They just get to pay off the SEC ‘without admitting any wrongdoing.’
Unfortunately, “they” — the actual human perpetrators of all the fraud and plunder — won’t have to pay a cent. None of those millions and millions and millions of pay and bonuses will be touched. It’s yet another advantage of corporate personhood — shareholders take the hit, not the executives. The douchebags who run Goldman will still have their mega-mansions on the North Shore, and the summer will shape up to be just splendid yachting time once again.
People may not realize unless they are lawyers or senior execs of corporations, but in large part this kind of litigation is analysed simply as a cost/risk issue – and settlement is the way almost all these things are resolved. Litigation (or pre-litigation discussions) are more or less just posturing and/or ways to shift costs and move the numbers closer to where the company has already decided it will gladly settle.
Of course, against the government, you remove the issue of the other party’s costs for the most part. So basically you get this dance where the company is trying to reduce the number or severity of charges/claims and negotiate a settlement that looks like a good deal to them.
Note also that companies like Goldman ( and most large companies) will have litigation reserves budgeted in advance. The trick is to avoid litigation enough times, and then settle for amounts where necessary, in keeping with those reserves i.e. predictions. When you do that, it doesn’t even count as a loss or hurt you vis a vis investors – it’s already budgeted for, like new office space, upgraded computers, or whatever.
Finally note that litigation costs can be very large, especially if you have to do a big discovery project (i.e. search through and turn over huge volumes of paper and electronic documents to the other side, have your senior execs deposed, etc.) Discovery also creates massive risk of bad stuff being found and/or said, and being used against you (by the feds, private litigants, etc.) A settlement that avoids extensive discovery or limits it can be very valuable to the defendant.
ok.. i’m sorry i issued a post order on the spot market, inadvertently triggering massive call orders from the computers on the derivatives market.
but what was i supposed to do, shrink into abject poverty while people like Goldman Sachs employees get filthy doing the same thing? then i guess i could sit & read about how bad it is that the government refuses to regulate the commodities market.
ya, i’ll just sit here in my trailer park home quietly reading websites..
oh, wait.. i just thought of another algorithm..
What Bloix said is why these settlements are set up that way. If they admitted liability in the SEC suit, GS would be prevented from denying liability in a shareholder civil suit. What the SEC usually gets in these settlements is a monetary penalty plus “disgorgement of illegal profits”. And Fabrice will probably be barred from trading on an American exchange for a number of years. This is separate from anything they face in either shareholder suits or a DOJ (i.e., criminal) complaint. The class actions have already started and the criminal part might be coming (the inquiry has begun, but a complaint hasn’t been filed).
What about claw-back? Anyone know if that applies?
West of the Cascades
What Mary said.
Also, in many district courts, some effort at “alternative dispute resolution” (settlement negotiations, mediation, etc) is mandatory, and a judge will almost always require the parties to meet and talk settlement early in a case even if the local rules don’t require it.
So there’s nothing unusual or surprising or nefarious about the parties meeting to discuss settlement, other than that (as Mary notes) that the settlement discussions started AFTER the case was filed in this SEC litigation — which is actually a good sign for the side of goodness and light.
Just a footnote, since it’s a civil case (not a criminal case), there’s a remote possibility a settlement might contain an “admission of liability” (i.e. that Goldman DID violate the Securities and Exchange Act of 1933). But it’s a remote possibility, since corporate defendants go to great lengths not to admit liability even if they make enormous settlement payments and agree to painful restrictions on their activities as terms of settlement.
Peter in Kobe
Perhaps it is no more than an urban legend, but I have read that the police confiscate all property used in certain crimes (drug related), such as cars, guns, etc. This property is not even returned when the prosecution fails to deliver a guilty verdict. I wonder how this policy would change things if it where also employed in white collar cases.
What would the police do with all that heavy bling? Private jets, yachts, limos, mansions, penthouses, pet congressmen, the list goes on and on!