Knowing that the Exxon Valdez Settlement took 20 years for the claimants to be awarded $507.5m (plus interest from the judgement of 1996) of the original $5b dollar figure, from a layman’s point of view, I am actually content with the Goldman Sachs $550m settlement with the SEC. We avoided years of appeals and legal wrangling. Many folks, and many liberals are not happy with this. Over at the Big Picture, Barry Riholtz points out that the SEC attorneys opted to settle because doing the prudent thing is well…the law.
FT’s Alphaville says I am cranky. Jeff Matthews says I am wrong. Michelle Leder points out the settlement is a pittance relative to GS’ cash.
Here’s a news flash: All of that is irrelevant. We are a nation of laws, and that is what guides SEC prosecutions, negotiations, and settlements. Sure, I may be cranky (only fellow curmudgeon Alan Abelson agrees with me), but what I truly am is astonished at some of the uninformed commentary pinging about inter-tubes about this subject.
Spin isn’t fact, opinions aren’t laws, and having an opinion is not the same as being informed.
One might hope that various folks discussing these issues have a passing familiarity with Securities law, but apparently not. Let’s see if we can edumacate some folks who are unfamiliar with the 1933 and 1934 Security acts.
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Based upon the evidentiary information the SEC had — emails, phone calls, sworn statements, etc. — the “Fabulous Fab” told Abacus buyers that John Paulson was long the Abacus CDO when he was in fact short it; Further, Fab omitted to mention that a short seller helped to construct the synthetic CDO that he was betting against.
That factual description is a clear violation of Rule 10b-5.
There are some folks who have argued that yes, Fab made untrue statements and omitted others — but they were not material. That is a very good, very lawyerly argument — but it is one that would be a stone cold loser in front of any jury.
Bottom line: IMO, this was a no brainer case based on these facts and the law. Unless you can show Fab never said those things, it is case closed.
THAT is why Goldman settled.
Also, Riholtz continues and makes a great point regarding some folks anger that Goldman still walks away with tons of profits and that the fines are not enough to wipe the bums out. (emphasis his):
Penalties should be proportionate to infractions: Consider the transgression at hand: Fab lied in the sale of structured products, and his firm Goldman Sachs failed to adequately supervise him in these transactions. In the grand scheme of things, this was actually a minor transgression. Sure, it was sleazy, but it was not a billion dollar violation; It sure as hell was not an Arthur Anderson type massive firm-wide fraud deserving of the death penalty — as some of the angrier posts have demanded.
As much as many people want to blame the entire economic meltdown on the vampire squid, they deserve only a modest amount of blame. Worse still, this was not their most egregious offense.
It may be tough to swallow, but we can’t wipe out the banksters with one, “you can’t handle the truth” civil trial moment.