The entire press release and supporting documents are available here.
No Fraud
Others who might have standing to file suits for damages related to Abacus and similar securities appear to be completely undercut by this settlement. Goldman admits no fault. The question of fraud has been taken off the table. Here are some of the words used by SEC spokesmen in the press conference:
- Goldman mislead investors with incomplete information.
- The problem was with deficient marketing materials.
Nothing was said about "deliberate" actions. The implication I take away is that the assumption can be made that the entire episode was inadvertent, accidental. I personally do not subscribe to that interpretation.
SEC Statements about What has been Accomplished
Here are some other key items selected from the press conference:
- The settlement assures accountability, punishment for past misconducts and prospective reforms.
- Goldman agrees to tighten internal controls and provide full, accurate and complete disclosure in the future.
- The settlement reinforces the concepts of full disclosure, honest treatment and fair dealing.
- Goldman is consenting to a permanent injunction preventing it from violating the anti-fraud provision of the Security Act of 1933.
- GS agrees to cooperate with the SEC in the prosecution of former Goldman executive Fabrice Tourre.
What has not been Accomplished
A number of things have not been accomplished:
- The discussion of the documentation of this case in open court will not occur.
- Internal responsibility for the misconduct within Goldman has been largely hidden.
- Clarification of the distinctions between suitability responsibility and fiduciary responsibility has not been made.
- No specific future actions by Goldman have been specified. They have simply promised to "do better", so to speak.
The Case Remains Open Ended
There are two things to mention here. One is pragmatic and one is intellectual.
First, the case against Fabrice Tourre remains open and it appears that Goldman will cooperate in his prosecution. To this observer, it appears that the rookie second stringer has been hung out to dry. It does not appear that he was the architect of any of this; he appears to have been little more than a sales manager. Was he following a sales script? Who wrote and approved the script? Yet he may well be the only individual suffering legal consequences. Is the "Fabulous Fab" going to be the collateral damage for Goldman in this affair?
The second point centers on the statement by the SEC spokesman that "Goldman is consenting to a permanent injunction preventing it from violating the anti-fraud provision of the Security Act of 1933."
Goldman does not admit to any wrong doing but is consenting to an injunction to prevent it from committing fraud in the future. Is such an injunction necessary for a firm which has not committed fraud?
Why must Goldman consent to an injunction to follow the law? Did the law not apply to them before the consent? This is a joke!
This resolution seems to do little to stop the type of behavior that allowed securities such as Abacus to be structured. It may be that enough lessons have been learned that such actions will not occur again. But maybe not.
The resolution does little to punish Goldman or those Goldman executives that condoned the actions questioned. Only Tourre has been singled out for further prosecution. Those who directed him may escape scrutiny.
Goldman, the company, has suffered a $550 million expense against approximate annual earnings of $12 billion and sees its market cap increase by more than $7 billion on the day. A mere slap on the wrist has been administered.
The SEC spokesman emphasized the need for accountability. Has accountability has been served?