Goldman Sachs in deep
Goldman was charged for failing to disclose to buyers of a collateralized debt obligation, known as ABACUS. Hedge fund manager John Paulson helped investors choose mortgage derivatives that he himself was betting against for the deal, setting investors up to fail.
This current SEC probe could spread to other companies and widen, making this charge just a possible tip of the iceberg.
Goldman already hurting
According to Reuters, Goldman has denied wrongdoing yet fighting charges carries a big risk not only for the company but for the CEO and could damage the bank by losing current and future clients. Goldman shares already sank 13% on Friday after the announcement of the charges.
Company reputation tracker, Vanno notes that the SEC probe is no surprise. Nick DiGiacomo, Co-Founder of Vanno said, “What’s of particular interest for Goldman Sachs is the high level of employee satisfaction and low levels of social responsibility (and customer satisfaction). It does seem that trends in different aspects of company reputation – in this case happy employees combined with a track record of social irresponsibility – can be viewed as a leading indicator of a company at risk.”
More lawsuits coming?
In America alone, the case could “buoy public drive for reform,” says Reuters. Well-known plaintiffs lawyer, Jake Zamansky told Reuters, “I’ve been contacted by Goldman customers to bring lawsuits to recover their losses. It’s going to go way beyond ABACUS. Regulators and plaintiffs’ lawyers are going to be looking at other deals, to what kind of conflicts Goldman has.”
Other countries are taking action
It’s not just individuals considering taking action against Goldman, Bloomberg reports that Germany may take legal action against Goldman. German government spokesman Ulrich Wilhelm said that Germany’s Bafin financial regulator will ask the SEC to share information they’ve gathered for the Goldman case.
In light of Goldman’s plan to pay $5.4 billion in bonuses just for the first quarter of 2010, according to the Huffington Post, Gordon Brown, Prime Minister of the UK was not shy about his anger with Goldman. “I am shocked at this moral bankruptcy,” he said on BBC TV. “This is probably one of the worst cases that we have seen.”
The UK is considering action against Goldman. Brown called for a “new global constitution for the banking system” that would, among other things, ban bonus packages like the ones planned by Goldman Sachs.
Dragging Schumer into it
Political bloggers have been pointing to the SEC charges with conspiracy colored glasses while others are only going so far as pointing out the close relationship between hedge fund manager John Paulson and New York Senator Chuck Schumer. Republican blogger, Doug Ross said, “You may also recall that the top three recipients of Fannie Mae’s campaign contributions — before it collapsed and precipitated the mortgage meltdown — were all Democrats: Chris Dodd (D-CT), Barack Obama (D-IL) and John Kerry (D-MA).”
It’s gonna get ugly
The SEC charges are just the beginning for Goldman, it appears. Germany, the UK, private American investors and the like are looking to take action against the firm, especially given the continued lack of morality as they prepare to spend billions in Q1 bonuses and the blogs are just now lighting up with links between Goldman and Senators. If more countries take action and the SEC continues to probe the industry, this is just the beginning and it’s going to get ugly.
